Tax Delinquent? May lose your Passport!!
On December 4, 2015, the Fixing America’s Surface Transportation Act, or "FAST Act," became law. The purpose of the law was to provide long-term funding for transportation projects, including new highways. However, the Act also included a significant new provision that allows the Department of State (sometimes just called "State Department") to yank passports from delinquent taxpayers.
Here's how it works. The Internal Revenue Service (IRS) doesn't have control over passports: that's the purview of the State Department. Tax debts are assessed by the IRS: the State Department doesn't generally have access to taxpayer information because of privacy laws.
To bridge the two, the law now requires the IRS to advise the State Department about seriously delinquent taxpayers. The State Department may then refuse to issue or renew a passport for a seriously delinquent taxpayer; the Secretary of State is also permitted to revoke any passport previously issued to a seriously delinquent taxpayer.
For purposes of the new law, a "seriously delinquent" tax debt is defined as "an unpaid, legally enforceable federal tax liability" greater than $50,000, including interest and penalties. The $50,000 limit will be adjusted each year for inflation and cost of living. The limit is not per year but cumulative meaning that it's the total tax debt that matters.
There are some exceptions under the law. Tax debt which is being paid on time as part of an installment agreement or under an Offer In Compromise doesn't count. It also doesn't include any tax debt for which a Collection Due Process hearing is timely requested in connection with a levy or a debt where the collection has been suspended due to an innocent spouse claim.
If you're seriously delinquent under the new law, the IRS is required to notify you in writing at the time that it certifies the debt to the State Department. The State Department will then hold your passport application or renewal for 90 days to allow you to resolve any errors, make full payment, or enter into a satisfactory payment plan. There is no grace period for resolving your debt before the State Department revokes an existing passport.
To get off the list, you must prove that the debt is fully satisfied, is legally unenforceable, or is not seriously delinquent tax debt under the statute (in case you're wondering, that does not include debt that dips below $50,000 - once you've hit that threshold, you must either pay it down or meet one of the other criteria).
That feels like the end of the story. You might be thinking if you have some tax debt, maybe you'll just decide not to vacation in Belize for a bit.
But what if just you want to go to Nashville? Or Boston? That's where things get tricky. Under another law - this one from 2005, the REAL ID Act - federal agencies cannot accept driver’s licenses and identification cards issued by states that do not meet certain standards.
As of January 22, 2018, all travelers with a driver’s license or identification card issued by a state that does not meet those standards must present an alternative form of identification acceptable to the Transportation Security Administration (TSA) unless that state has an extension. The list of acceptable identification includes a passport.
The rules tighten up even more in a few years. As of October 1, 2020, every air traveler will need a REAL ID-compliant license, or another acceptable form of identification, such as a passport, for domestic air travel.
So what does all of this have to do with taxes? This is where the new tax law matters. Not paying your taxes may affect your ability to fly in the future since your passport may be yanked for noncompliance. Depending on where you live, a lack of a passport could translate into being grounded - literally - by the government.
If you have tax debt and don't have the cash to pay in full, consider these steps before it affects your ability to travel (as well as your credit and more). For more tips on getting out of the tax debt doghouse, check out this prior article.
As for the timing of that tax debt list? Here's what the IRS said most recently:
The IRS has not yet started certifying tax debt to the State Department. Certifications to the State Department will begin in early 2017, and this webpage will be updated to indicate when this process has been implemented.