IRS may revoke passport of those who owe $50k in taxes - new law

© Fred Greaves
A new law passed by US Congress and signed by President Obama this month allows the IRS to strip anyone who owes the US government as least $50,000 in unpaid taxes of an American passport.

The law, passed via approval of transportation legislation known as the Fixing America’s Surface Transportation Act, will give the Internal Revenue Service and the US Department of the Treasury permission to authorize the US State Department to pursue or deny delinquent taxpayers' passport privileges. Those owing more than $50,000 to the IRS would receive written notice of the revocation, but only after the IRS has filed a lien.

Pursuant to the law, the State Department will not issue a passport to anyone who owes more than $50,000, with some exceptions. Those outside of the US when their passport is revoked will, however, be allowed to return home.

The law does not apply to a US taxpayer who has struck a deal – installment payments, for instance – with the IRS over taxes owed. The law also allows exceptions for minors with large unpaid-tax amounts, innocent spouses, and some military personnel.

The IRS has reported that, in 2014, there were 12.4 million delinquent tax accounts in the US, which, in all, represented about $131 billion in assessed taxes, interest, and penalties, the Arizona Republic reported.

An agency spokesman said the IRS is reviewing the law and will implement its terms "as soon as feasible."

Tom Wheelwright, a certified public accountant and chief executive officer at ProVision Wealth Strategists, told the Arizona Republic that the $50,000 threshold was a low limit given how fast debt can be incurred. Furthermore, he said the general unresponsiveness of the IRS could make it difficult for taxpayers to remedy their debt situations in a timely manner.

Yet Wheelwright also said those who get into deep trouble with the IRS are often afforded as many as four notices over three to six months prior to reaching the collection stage.

The law also demands the IRS offer "inactive" tax delinquencies to private debt collectors in the event that the IRS has tried and failed to locate the taxpayer and subsequently collect unpaid taxes, or if the IRS believes a certain collection is "not worth their time," Wheelwright said.

Lief Simon, writing for Offshore Living Letter, slammed the "potentially civil rights-violating bill" for the manner in which it was passed – as part of a larger bill "with a completely unrelated and far more positive agenda," as well as the potential of the law's reach given how fast one can incur IRS fines.

"Unfortunately, what we’re talking about is way farther-reaching than may be immediately apparent," Simon wrote.

"It’s not only taxes owed but also penalties and interest that are considered toward the US$50,000 threshold. In our current age, it’s not that uncommon or difficult to find yourself owing the IRS fines of more than US$50,000, perhaps, for example, for not filing forms you didn’t know you needed to file. The minimum fine for not filing your FBAR [Foreign Bank and Financial Accounts report] is US$10,000. However, if the IRS decides that you willfully failed to file your FBAR, the penalty jumps to US$100,000 or 50% of the account values, whichever is greater."