The Internal Revenue Service (I.R.S.) has made it clear — it will revoke U.S. passports for Americans who owe more than $52,000 in overdue taxes. IRS Passport Revocation is a tool that has worked well and brought in satisfactory collection numbers.
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The decision comes in light of the provision passed by the Congress into the Fixing America’s Surface Transportation (FAST) Act in 2015. With this, the I.R.S. is now permitted to request the State Department to deny issuing new passports and deny renewals to those marked by them for tax default by sending a CP508C notice and a Letter 6152 to the concerned taxpayer
As explained by the I.R.S., a taxpayer who qualifies for the delinquency will receive a Notice CP508C, “Notice of Certification of Your Seriously Delinquent Federal Tax Debt to the State Department,” and Letter 6152, “Notice of Intent to Request U.S. Department of State Revoke Your Passport” before it actually refers the matter to the State Department.
The enforcement of this rule began in Feb. 2018 for debts amounting to $51,000 or higher. So far, it only hindered the issue of new passports and renewing existing ones. The threshold was revised to $52,000 in 2019, and the reasons were attributed to inflations.
The I.R.S. will not be referring the revocation cases to the State Department, according to Cecilia Barreda, the I.R.S. spokeswoman who spoke to CNBC. The State Department will decide to revoke or deny passport applications based on the information the I.R.S. provides, and according to the I.R.S., the threshold amount — $52,000 — will include federal tax debt, interest, and penalties on the amount that is due.
“Our goal was to remind people that this program has been in operation but additionally that it is our intention to begin referring cases to the U.S. Department of State for passport revocation,” said Barreda.
The decision to revoke existing passports by sending a Letter 6152, stop the issue of new passports and reissue of existing ones, will indeed mark the attention of tax practitioners and supervisors. The impact of such a rule can be significant, especially on expats, and individuals who regularly cross to Canada or Mexico — even daily — for work. If an individual’s passport is revoked when they are across the border, they will be issued a temporary passport so that they can return to the U.S.
A tedious collection process
According to Barreda, the I.R.S. has identified more than 400,000 individual taxpayers who are under the ax ever since the program started. Consequently, a CP508C notice gets sent to these individuals, demanding action and payment of the taxes on their part.
As of June 2018, the government body had collected $11.5 million from 220 individuals. Recent figures are said to be unavailable, but according to a July 2018 report by CNBC, about 1,400 individuals entered payment agreements.
However, the collection process has been quite a tedious affair for the I.R.S. According to a NYT report, private debt collectors cost the Internal Revenue Service $20 million in 2017 but brought in only $6.7 million in back taxes. The publication referred to the agency’s taxpayer advocate for the data which showed that less than one percent of the amount assigned for collection. It was also revealed that private contractors were paid 25 percent omission in some cases on collections made by the I.R.S. without their help.
The annual report by Nina E. Olson, who heads the Taxpayer Advocate Service, an independent office within the I.R.S., said that “the I.R.S. has implemented the program in a manner that causes excessive financial harm to taxpayers and constitutes an end run around taxpayer rights protections.”
Those ultimately at the risk of their passport revocation will receive the Letter 6152, notifying them that their case is being referred to the State Department for further action.
“They will receive [the CP508C letter] before the IRS. refers a case for revocation,” Barreda explained. “If there’s a message here, it’s that taxpayers who have a tax debt are encouraged to contact the IRS. promptly to resolve their tax debt and avoid the possible revocation of their passport.”
The debtors are given a 30-day response window to the notice.
However, other taxpayers, who are a victim of tax-related identity theft, are bankrupt, or are going through hardships which has led to the I.R.S. determining that they won’t be eligible for the tax default, won’t have their passport revoked as the government body, in this case, won’t send a Letter 6152. Others who won’t be affected are those who reside in a federal disaster area, have negotiated or are in the process of negotiation with the I.R.S. for tax repayment, or are in a military combat zone.
There won’t be a grace period for those who have an active passport. Those who have been certified for tax debt will get a Letter 6152 and have their passport revoked immediately. Previously, taxpayers who had found relief with the Taxpayer advocate’s Office (T.A.S.) and were working with the government body to resolve the issue could retain the passport. But now amendments to the rule, as of Oct 2019, will leave no room for such an exemption as the I.R.S. was concerned that taxpayers might take unfair advantage of the scheme.
Those taxpayers who have received the Letter 6152 stating that their passports will be revoked if the debts are not settled, but have plans to travel abroad, can contact the government body and request an exemption. In some instances, I.R.S. can expedite their case. Further, taxpayers may be expedited if they provide acceptable documents to the I.R.S., proving that they are to travel abroad in the next 45 days. In such a case, they need to provide a letter to the State Department, showing that their passport application has been denied, and that their active passport is in the process of being revoked.
The I.R.S. recommends that there should not be any delay for those who are planning to travel abroad and have their passport applications denied. The documents that they are to provide include proof of travel and a copy of a letter from the State denying their passport application or revoking their passport. The proof of travel can be a “flight itinerary, hotel reservation, cruise ticket, international car insurance or other document showing location and approximate date of travel or time-sensitive need for a passport.”
However, the 30-day window given by the I.R.S. to take action on this matter is being questioned by some. Attorney Reaz Jafri, a partner and global head of immigration at the law firm Withers Worldwide in New York told CNBC that the one-month period may have severe consequences for some, especially those traveling abroad.
“Our biggest concern as an international firm is that a client who is overseas will get hit with one of these letters, never see it and have their passport canceled,” he said. “It can easily happen that a client returning to the U.S. finds out at the border that their passport is canceled and the only way to get it back is to settle the debt.
Jafri added that the process of getting people to return may take “months, if not years.”
Expats under the ax with IRS Passport Revocation
However, the program might turn out to be quite unfavorable for expats since all of them have passports.
Expats working overseas will have a VISA or work permit, and these permits will be valid even if their passports are marked invalid by the State Government.
Expats will have to get this resolved to ensure that things are smooth on their end and their travel, stay and return to a foreign country and back is not hampered. They must also ensure that the CP508C or the Letter 6152 that they get is accurate. If they think it’s a mistake, then it’ll be in their best interest to get on a call with I.R.S and clear their doubt by explaining why they think it’s incorrect.
The I.R.S. is continually struggling with taxpayers living abroad, and the problem with communication between the I.R.S. and expats is not new — it has been reported much before the new revocation guidelines were issued.
A government watchdog had pointed out that the U.S. State Department, in 2014, had estimated that around 7.6 million U.S. citizens reside in countries abroad. The I.R.S. had sent more than 850,000 notices to the taxpayers living outside the U.S. in the calendar year 2014.
The government body could not determine a response rate from those individuals. The lack of data only makes the matter worse, as comprehensive data is needed to come up with apt measures to improve the program.
The reason for this could be that I.R.S. systems are not entirely designed to handle correspondence abroad and send notices to international addresses. Besides, several other factors affect international mail deliverability, and this could seriously hamper the way the matter is perceived, and even delaying the action against individuals to whom a notice has been sent.
“For an overseas American, a valid U.S. passport is often the only means of identification valid for establishing or maintaining residency in that person’s city of residence and employment; opening a bank account; obtaining a mortgage or other loan; registering at university; obtaining a marriage license, etc.,” the Association of Americans Resident Overseas said in a 2019 position paper.
Tax advisors could help with IRS Passport Revocation Logistics
The new I.R.S. guidelines also call for tax advisors to be highly aware and diligent while assisting a taxpayer who finds themselves at the end of a possible passport revocation exercise. Often, other clients might not have much idea about what is going on, so it is for them to make the clients aware of the guidelines.
Those fearing that their passport might be revoked with the Letter 6152 could look at factors that the I.R.S. might consider while sending a possible revoking order.
The I.R.S. may not send a CP508C notice or the Letter 6152 notice if a taxpayer has come under an agreement to make timely payment of their taxes or is working with the I.R.S. on an offer of compromise. The I.R.S. may also layout an exception for the individual who has filed a valid and timely Collection Due Process (C.D.P.) hearing, has asked for innocent spouse relief, or has entered into a settlement agreement with the Department of Justice.
The factors mentioned above allow for protecting taxpayers from certain hardships that may see their passport being revoked.
The I.R.S. takes around 30 days to reverse the process of passport revocation and sends a notification to the Department of State to do the same.
Then, there are the streamlined filing compliance procedures available to taxpayers to make it clear that their failure to report foreign financial assets and pay all tax due wasn’t intentional on their part. The streamlined procedures are designed by the tax-collection body to provide taxpayers in such situations with a streamlined process to file returns and resolve their tax and penalty obligations.
Impact of the IRS Passport Revocation program
The IRS passport revocation program clearly has a desired impact.
People are also afraid of getting a notice from the I.R.S. 42% of adults, according to a poll by NerdWallet revealed that they were ready to overpay on federal income taxes, even their filing process would call for them taking home less money for the entire year.
“The average refund is just under $3,000 — that’s $250 you could have had in your pocket every month to put toward bills and savings,” said Andrea Coombes, a tax specialist at NerdWallet.
The findings revealed that two in five Americans prefer to overpay their taxes throughout the year and get a refund, which implies that they would be taking home a smaller paycheck every year.
The tax collection initiative by the I.R.S., however, took a toll amid the COVID-19 pandemic. To deal with the myriad challenges posed on taxpayers by the coronavirus pandemic the government body announced March 25 a set of relief measures for those undergoing tax issues.
The initiative was dubbed as the ‘People First Initiative‘, and it called for the suspension of all audit activities and even postponed tax collection activity through July 15.
The I.R.S. commissioner described the initiatives as “extraordinary steps to help the people of our country. It was said that I.R.S. “is pursuing unprecedented actions to ease the burden on people facing tax issues. During this difficult time, we want people working together, focused on their well-being, helping each other and others less fortunate.”
Frequently Asked Questions Regarding IRS Passport Revocation – Answered by a Former IRS Agent