Compliance for expats is no easy thing. I don’t say it lightly when I tell people that expats have to work harder than any other US taxpayer to stay in compliance. In reality, they probably have to work harder than anyone else in the world as they need to be compliant with both the country they live in and the United States. In previous articles, we’ve discussed how the IRS’s statute of limitations on collections (the CSED) and the disclosure of foreign accounts can have an enormous impact on US expats. Not only that, but when an expat leaves the US, their worldwide income becomes taxable. Now you start to get an idea of just how difficult their returns can be (and that’s before we bring FATCA, FBARs, and complicated deadline dates into the mix).
When we learned that the president signed H.R. 22 into law, a bill that allows the government to take away passports for past-due taxes, there was a collective groan amongst our staff. We’re dealing with the US tax code, which is the most complicated tax system in history; the IRS, who are the biggest collection bullies on the planet; and now we have to add their new-found ability to take away your passport and strip you of your freedom to travel. We can picture them flexing their muscles in anticipation.
The facts so far
- As of December 3rd, 2015, bill H.R. 22 was signed by the president and is now law. It is expected to take effect in January and will apply to existing tax debts, but we don’t know the actual dates as there will be more than a few procedures that need to be nailed down.
- The IRS can submit certifications of “seriously delinquent taxpayers” (as they’re known under H.R. 22) to the Secretary of the Treasury, who then passes it on to the Secretary of State. The Secretary of State can deny such persons a passport if they apply, and can revoke a passport that has already been issued.
- A “seriously delinquent taxpayer” is a person who owes $50,000 or more in federal taxes, penalties, and accrued interest, and is not currently in a repayment program with the IRS.
Contact us at 888-727-8796 if you’re concerned about your passport being revoked (and yes, your information will be subject to the attorney client privilege). We’ve successfully assisted thousands of clients deal with IRS issues. You can also email us at firstname.lastname@example.org.
$50,000!? That seems pretty high…
For many people, $50,000 in owed taxes can seem like an astronomical amount that they could never reach. However, debt can add up very quickly. Not only that, but it can be incredibly difficult for notices that the IRS mails to get to overseas addresses. An expat may be delinquent and not even know it, and yet they’re still stuck with penalties that continue to compound year after year.
We mentioned the CSED earlier, and while we won’t get too in depth here, it’s worth stating that a CSED is the collection statute expiration date that the IRS has to come after a taxpayer to collect a liability. When you leave the country the CSED stops running, so technically the IRS has an infinite amount of time to collect past debts. Don’t bank on an old debt disappearing while you live overseas. (If you want a detailed explanation on CSEDs you can read our recent article on expats and the CSED here or listen to our podcast here).
If you’re an expat, think of yourself as the table. Used, yet forgotten.
Small tax debts can add up
Wanting to get an idea of how long it may take for $50,000 to add up for a few “average” taxpayers, we plugged some numbers into our software.
In 2006, if you owed $28,000 to the IRS and left the bill unpaid, you would currently owe the IRS over $50,000 (we only included the failure to pay penalty, not failure to file). This would allow the Secretary of State to deny your application for or revoke your current passport.
Full TaxInterest (TM) calculations: 10-year-scenario
In 1995, if you owed $15,000 to the IRS, you would owe over $50,000 now.
Full TaxInterest (TM) calculations: 20-Year-Scenario
The time is now
You need to take immediate action. Owing the IRS money is scary, and unfortunately there is no way to wish it away. This is your passport we’re talking about after all; for expats especially, passports are a lifeline. Don’t wait for the IRS to come after you. You’re always going to be in a better situation if you get out in front of the problem and stop it before it gets any worse.
Help is always available, and the best time to start dealing with a tax problem is right now. If you feel overwhelmed and unsure of what to do, don’t hesitate to contact us. Every situation can be made better. Whether it’s making sure that you don’t lose your passport or setting up an agreeable offer in compromise or installment agreement, there are always options.
Information is a powerful tool, and understanding where you stand with the IRS can help you find clarity on what moves you should be making. To listen to our podcast on this difficult issue, click here.