Happy New Year: Now the IRS Even has the Power to Revoke your Passport
On : 09 January, 2016
In : US Tax News
Yes, the IRS always has interesting ways of ringing in the new tax year. If you have delinquent federal tax debt of $50,000 or more, you are now at risk of losing your US passport—Happy New Year.
This new law went into effect January 1 after President Obama signed into law the “Fast Act”, mainly a highway and infrastructure funding bill, which includes a new section 7345 for the Internal Revenue Code entitled “Revocation or Denial of Passport in Case of Certain Tax Delinquencies”. This section gives the IRS the right to have US passports revoked for persons having a serious tax debt of $50,000 or more (including penalties and interest).
Why are passports covered in the tax code, you ask? Why is this provision in a highway funding bill, you ask? Is this even constitutional, you ask? All good questions, but they don’t change the fact that the IRS does now have the authority to leave one US passport-less if that minimum amount of debt is reached, and that is not a big amount when including penalties and interest. How will it be implemented? In these early days that remains unclear; perhaps the IRS could have renewals or new applications declined or in the toughest case perhaps they could revoke current passports. Certainly it would be a risk to be travelling in or out of (or within) the US on that passport.
You are, or should be, aware of FATCA (Foreign Accounts Tax Compliance Act), a United States Federal Law requiring United States persons (including those living outside the U.S.) to have annually reported their non-U.S. financial accounts to the IRS and FinCen /Department of the Treasury. In relation to this such persons must also report all income received outside of the US in their US income tax report (including those living outside of the US
The penalties for not doing this are high and there are programs provided for one to enter to escape those penalty risks (e.g. OVDP, Streamlined, colloquially called “amnesty” programs). Those programs and FATCA will be discussed in following blogs but for now it is worth noting that the $50,000 of tax debt, which can result in passport loss, could come to both US residents and US persons abroad as a result of not complying with FATCA and other US tax rules, with or without knowledge of required compliance. This is an important subject for US persons with any relationships with a foreign county, even simply a bank account.
All US citizens, living abroad or in the US, should ensure that their IRS tax affairs are in order that they do not have issues with their US passports.
This blog has been prepared for informational purposes only and is not intended to provide, and should not be relied on for, legal or tax advice. You should consult a legal advisor before engaging in any transaction in relation to this information.