Here’s something that went largely under the radar with the adoption of last year’s “Fix America’s Surface Transportation Act” (FAST Act): If you’re a “seriously delinquent” taxpayer, the Secretary of State is required to deny you a passport if you apply for one. The Secretary of State also has the power to revoke a passport that has already been issued to you if you are a certified “seriously delinquent” taxpayer.
So, if you owe $50,000 or more in back taxes and penalties and you don’t want to have John Kerry as your vacation planner, or find yourself stuck in a foreign land with no passport to get you home, now’s the time to settle up tax debts with Uncle Sam.
The “seriously delinquent” taxpayer—this is one certification that you do not want to earn!
Under the FAST Act, the IRS must submit certifications of “seriously delinquent” taxpayers to the Secretary of the Treasury, who will then send these certifications to the Secretary of State. If your name is on the list, you’ll have to cancel any far-flung foreign travel plans because you may lose your passport privileges.
This “grounding” by the Secretary of State also applies to U.S. citizens who are currently out of the country as well, which means if you skipped the country and have a big unpaid tax bill, you may not be able to get back to home soil. The Secretary of State is authorized to make exceptions to these rules for emergency or humanitarian purposes, but these are the only exceptions.
1. How does the IRS define a “seriously delinquent” taxpayer?
The “seriously delinquent” label a bit of a misnomer because in this case “seriously” really means that you’re taking a “casual” approach to rectifying your tardy tax payment situation.
Under the FAST Act, you earn the “seriously delinquent” certification if you:
- Owe more than $50,000 in federal taxes (this threshold will be adjusted each year for inflation), penalties and interest;
- You have had a federal tax lien filed against you; or
- You have received a final notice of intent to levy and let the period to file an appeal on the notice pass you by.
The bottom line here is that in order to have your passport privileges revoked, you have to be ignoring the fact that you owe the IRS money and making no effort to pay them —which is never a smart strategy.
If you do owe back taxes and you’re working on paying them, you can likely breathe a sigh of relief and still get on that flight to Fiji—passport in hand—thanks to some exemptions such as those for individuals who are making good on their current installment payment plans, those who have submitted an IRS offer in compromise, those who have an application pending for a collection due process hearing; and those with an application pending for innocent spouse relief.
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How do you know if you have made this unfortunate list?
If you’re receiving regular correspondence from the IRS, it’s likely that you already know you should be doing something to correct your tax situation…so please open the envelopes—and then get an experienced CPA to help you resolve your problems.
When you open your notes from the IRS makes sure you read them to see if you have made that unfortunate “seriously delinquent” list. The IRS is now required to list the revocation or denial of a passport as a possible result for not resolving a tax debt on the delinquency notices it sends. If you do receive confirmation of “seriously delinquent status, you can be sure that so has the Secretary of State’s office.
How can you win back your passport privileges and get off the “seriously delinquent” list?
The IRS will “decertify” you and notify the Secretary of State that you are no longer a “seriously delinquent” taxpayer if you:
- Make full payment of your tax debt
- Enter into an installment agreement
- Have an offer in compromise accepted
- Request relief through innocent spouse procedures
So as you can see, there is hope for redemption—even with the IRS, but only if you live up to your end of the taxpaying bargain. To start, you may want to consider taking the funds you have allotted for foreign (or even domestic) travel this year and put them toward your delinquent taxes.
It may not be as fun as a trip to Rio in the short-term but it will prevent you from losing your passport—or potentially being stranded in a foreign land—in the future.
You can find a better travel agent than John Kerry—resolve your IRS tax bill.
Of course, having your freedom to travel outside of the country curtailed is both annoying (and bad for business if you have foreign clients) plus, it can feel pretty overwhelming to face a large unpaid tax bill, but ignoring your delinquency only makes matters much worse. The good news is, there are many options to help you get back on track. A CPA with experience negotiating with the IRS can help you put a repayment plan in place so you can focus again on racking up frequent flier miles instead of the heavy burden of IRS debt.
Jonathan Medows is a New York City based CPA who specializes in taxes and business issues for consultants across the country. His website, www.cpaforfreelancers.com, has a resource section with how-to articles and information for freelancers.