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What the State Department giveth, the IRS may taketh away

There is now an additional risk for taxpayers who fall seriously behind on their federal tax obligations. Under the Fixing America's Surface Transportation Act signed into law in December 2015, the U.S. Department of State will neither issue a passport nor renew a passport if the applicant is a seriously delinquent taxpayer. Further, the State Department must revoke the current passport of a seriously delinquent taxpayer.

Fortunately, the law is specific about what constitutes a seriously delinquent debt. It is "an unpaid, legally enforceable tax liability" that totals more than $50,000 with interest and penalties included. One qualifier: The taxpayer must know about the debt because a notice of levy or notice of lien has already been filed. For good measure, the IRS will adjust the $50,000 threshold annually to reflect inflation and cost of living increases. 

Even better, there are exceptions. Anyone who has ever owed money to the IRS knows that the overdue amount can easily be eclipsed by penalties and interest, so a dollar amount that seems manageable at first can quickly become burdensome. There are also taxpayers who are in the process of paying down their debt -- it hardly seems fair to deny a passport to someone who is making a good faith effort to clear up the past due amount, especially when the repayment plan has the blessing of the IRS.

The law exempts debts that are:

  • subject to an offer in compromise
  • included in an installment agreement
  • suspended pending a collection due process hearing
  • suspended pending approval of innocent spouse relief

Of course, qualifying for an exception does not necessarily mean you will get one. We'll explain more in our next post.

Source: Forbes, "New Law Warns Delinquent Taxpayers: Pay Up Or You Could Lose Your Passport," Kelly Phillips Erb, Dec. 6, 2015

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