Effective January 2018, the IRS will begin to implement a new Internal Revenue Code section, which involves the ability by the IRS to make a Section 7345 certification and notify the Department of State of any such certification involving an individual with a seriously delinquent tax debt. The term “seriously delinquent tax debt” for the year 2018 means any unpaid, legally enforceable federal tax debt of more than $51,000 (note that this figure includes all interest and penalties) and this threshold amount is indexed yearly for inflation.
Code Section 7345 was enacted under the Fixing America’s Surface Transportation (FAST) Act, Pub. L.114–94, back in December 4, 2015. Under the FAST Act, upon receipt of a Section 7345 certification regarding an individual from the IRS, the State Department will generally deny an application for an issuance or a renewal of a passport from that individual. Furthermore, the State Department may revoke or limit a passport previously issued to the individual.
Let’s revisit what is considered a seriously delinquent tax debt. This is a federal tax liability for which either of two events have already occurred. One possibility is that the taxpayer has already received a notice that a federal tax lien has been filed under section 6323 and that the taxpayer’s right to a hearing under section 6320 has been exhausted or lapsed. The other scenario is that a tax levy has been issued under section 6331.
By way of clarification, Section 7345 does not consider the following to be a seriously delinquent tax debt: debt that is part of a timely paid, IRS-approved installment; debt that is timely paid under an IRS-accepted offer in compromise; debt that is timely paid under a Department of Justice settlement agreement; debt in connection with a levy for which collection action has been suspended during the procedures involving a collection due process hearing; and debt for which collection is suspended as a result of an innocent spouse election or a request for innocent spouse relief.
Furthermore, a taxpayer’s passport will not be affected if any of the following apply: the taxpayer is in bankruptcy; taxpayer has been identified by the IRS as a victim of tax-related identity theft; IRS has deemed the taxpayer’s account to be currently not collectible due to hardship; taxpayer is located within a federally declared disaster area; taxpayer has a pending installment agreement with the IRS; or taxpayer has a pending offer in compromise with the IRS. Finally, IRS certification of a taxpayer’s seriously delinquent tax debt will be postponed while that individual is serving in a combat zone or participating in a contingency operation.
Section 7345 requires the IRS to notify the individual when that individual has been identified for certification or reversal of a certification. Notice CP508C “Notice of certification of your seriously delinquent federal tax debt to the State Department” will explain the amount due, the due date, what the taxpayer needs to know, and what the taxpayer needs to do to prevent the State Department from denying, revoking, or limiting their passport. If the taxpayer believes that the certification was made in error or if the taxpayer does not agree with the amount due, the taxpayer should first call the number listed on the top right corner. If the taxpayer is unable to resolve the disagreement but still disagrees with the IRS’ certification or failure to reverse a certification, that individual has a right to a judicial review by filing a claim with the U.S. Tax Court or the U.S. district court. If the court rules in favor of the taxpayer, the court may order the IRS to notify the State Department that the certification was in error. Unfortunately, this is the only recourse that a taxpayer has as there is no IRS administrative process in connection with the IRS certification process.
If the IRS erred in making a certification, the IRS is required to reverse the certification and notify the State Department of such reversal (e.g. if the debt has been fully paid, falls below the threshold amount, or becomes unenforceable). Section 7345 provides details regarding the timing required for IRS to notify the State Department of any such reversals. The State subsequently removes the certification in connection with the debt from the State’s records.
What happens to a taxpayer who has been certified by the IRS and who later applies for a passport? The State Department will generally provide that individual with 90 days to resolve the tax delinquency (e.g. pay off the debt, enter into an installment agreement, or enter into an offer in compromise with the IRS). If the debt remains unresolved, the State Department will deny the application.
One of the mistakes that some taxpayers make is to ignore correspondences from the IRS until the problem escalated to the lien or levy filing stage. Although it is never pleasant to receive any notices from the IRS, you should consult with a tax attorney if you have any concerns or questions as soon as they arise. Taking action now will reduce or possibly eliminate the stress and administrative procedures down the road.
IRS guidance (Notice 2018–01) for the implementation of new Code Section 7345 can be found here.
To learn more about Notice CP508C, go here.