***Update 12/4/15:
Revocation and denial of passports -has officially been passed into law, Read updates here***
***Update 10/3/16:
Many people have asked if the IRS is actually revoking passports yet. As of this moment, it does not seem as if all of the pieces of the administrative puzzle are ready to go yet. BUT — The IRS has hired 4 outside debt collection agencies that will begin contacting taxpayers this Spring for outstanding tax debts. This is a big step towards the process being finalized. We will keep you updated as changes come in.***
Last month we wrote about an upcoming bill (H.R. 22) that could cause those with IRS debts to have their passports/requests for a passport revoked. Hidden in a bill addressing highway maintenance, we don't blame you if you never heard about this development. Well, time is running out – the bill must be passed before the end of the week, otherwise the temporary law that was enacted will expire. Unfortunately, at this point it is a foregone conclusion that the House and Senate will pass the bill and that it will be delivered to the desk of the President to be signed into law. As much as we like to think he'll rip it up and then burn it for good measure, common sense indicates that he will let it pass. So much for wishing.
Under the bill, as modified by the conference agreement, the IRS must submit certifications of "seriously delinquent" taxpayers to the Secretary of the Treasury, who must then pass along these certifications to the Secretary of State. Once receiving certification that a person is a "seriously delinquent" taxpayer, the Secretary of State is REQUIRED to deny such person a passport if the person is to apply. The Secretary of State is also permitted to revoke a passport that has already been issued to a person that receives such certification. The Secretary of State is also authorized to deny an application for a passport if a person fails to provide a Social Security Number or provides a Social Security Number that is incorrect or invalid if the error was willful, intentional, reckless, or negligent. The Secretary of State is authorized to make exceptions to these rules for emergency or humanitarian purposes, such as for issuing a short-term passport to allow a person outside the United States to return.
What exactly is a "seriously delinquent" taxpayer? That sounds scary…
A "seriously delinquent" taxpayer is a person who owes more than $50,000 in federal taxes, penalties, and interest. They have had a federal tax lien filed against them or have received a final notice of intent to levy and let the period to file an appeal on the notice lapse. Please note, the $50,000 threshold will be adjusted each year for inflation (so while someone might be "seriously delinquent" this year, it's possible they wouldn't match the threshold in coming years).
If a taxpayer is in an active installment agreement; has an accepted offer in compromise in good standing; has a Collection Due Process Hearing pending (if they requested one after a federal tax lien was filed or a Final Notice of Intent to Levy was issued); or if the taxpayer has requested innocent spouse relief and the request is pending, the IRS will not send out the certification, even if the taxpayer's debt exceeds the threshold amount.
What if the IRS makes a mistake?
Originally, neither the House or Senate bills addressed procedures for the IRS to notify taxpayers that they were at risk of these consequences. In the conference to resolve the differences in the bills passed by the House and Senate, additional procedures were added. The IRS will now be required to list the revocation or denial of a passport as a possible result for not resolving a tax debt on the notices it sends that warn of potential collection actions. When the IRS sends a certification that a person is a "seriously delinquent" taxpayer, the IRS will be required to send a notice to the taxpayer that this certification was sent. And if the person resolves their tax liability through a permissible way and the IRS "decertifies" them to the Secretary of State, the IRS is required to send a notice within 30 days that this has been done.
Before these changes, neither the House or Senate bills addressed procedures for resolution if the IRS incorrectly certified a person as a "seriously delinquent" taxpayer or if the person — after being certified as a delinquent — resolved their tax liability. In the conference to resolve the differences in the bill, these procedures were added. The IRS will be allowed to "decertify" a person if they made the certification in error (well, that's good – the IRS can admit that they made a mistake!). The IRS is required to notify the Secretary of State that a person is no longer a "seriously delinquent" taxpayer if that person has:
- Made full payment of the tax debt;
- Entered into an installment agreement;
- Had an offer in compromise accepted; or
- Requested relief through innocent spouse procedures.
This "decertification" must be sent within 30 days of the event occurring and, upon receipt of the decertification, the Secretary of State is required to delete the person's name from its records of "seriously delinquent" taxpayers.
The conference agreement adds a provision allowing a person to seek an injunction against the revocation of their passport if they are wrongly certified as being a delinquent taxpayer. I don't know why these changes were necessary as they should have been included in the original bill, but I'm glad that they were added. That doesn't mean that the bill is right or fair, but the ramifications could have been much worse if there was no way to get decertified.
Private debt collection of federal taxes
The purpose of studying history is so that you can repeat your mistakes over, and over, and over again… right?
Since allowing private debt collection agencies to collect on federal tax debts has failed miserably time and time again (and was discontinued following a massive outcry of unfair collections practices and abuses of taxpayer's rights), Congress would like us to try again. Maybe we can get it right this time?
Included in this bill (H.R. 22) is a provision that will require the IRS to outsource the collection of certain tax debts to private collection agencies. These tax debts will include ones that:
- Were removed from the IRS's active inventory due to insufficient resources to go after that person or company;
- Were removed from the IRS's active inventory because of an inability to locate that person or company;
- Have allowed 1/3 of the statute of limitations to elapse (generally speaking, this would mean about 3 1/3 years from the time the taxes were assessed) and has not assigned a collections employee to collect the debt; and
- Have been in active collections, but have had more than 365 days pass since an IRS employee interacted with the taxpayer (or their representative) to further the collection efforts.
Certain tax debts will not be eligible to be assigned to private debt collection companies, including those that:
- Are included in a pending or accepted offer in compromise;
- Are included in a pending or accepted installment agreement;
- Are included in an innocent spouse request;
- Involve a taxpayer who is deceased, under the age of 18, in a designated combat zone, or is a victim of identity theft;
- Are currently under audit, litigation, criminal investigation, or already have outstanding levies being applied to collect the debt; and
- Where the taxpayer still has a right to appeal the collection of the debt.
Any funds collected by these private collection agencies will not be paid into the coffers of the federal government (at least not immediately). Instead, they go into a special fund. Out of this fund, the private debt collection agencies are able to be paid up to 25% of what they collect, based on their contracts with the IRS. Another 25% is to be used by the IRS to hire new Revenue Officers for local collection efforts and to hire new collections personnel for the automated collection system (ACS).
IRS passport procedures to be implemented "without delay"
Now, what happens if your tax debt is sent to one of these private collection agencies? First, the agency will send you a letter. If the address the IRS gave them is incorrect, the agency will have to search for your correct address. Then, it will call you to request full payment of your tax liability (remember all those press releases saying that the IRS doesn't typically contact people by phone in an effort to prevent scams?). If you cannot pay your tax liability in its entirety right away, these agencies are authorized to reach an agreement with you to fully pay off your debt within five years. If you are unable to pay in full over those five years, the agency will request your detailed financial information and give that information to the federal government, allowing the IRS to enter into further negotiations with you. This certainly sounds like a system designed to protect the rights and confidentiality of people who have fallen on hard times, doesn't it?
If you find yourself worried that the IRS might deny your request for or revoke your current passport, don't hesitate to contact us. Help is available and getting back into compliance is the best way to keep the IRS from limiting your freedom. We're going to keep hoping that a miracle happens and the bill doesn't pass, but we don't foresee that happening. Instead, we've readied ourselves to help our clients quickly resolve their debts and retain their freedom. If you're overwhelmed, take a deep breath. Every situation can be made better.
*Note: This was based on the the committee report, and there is one potentially major difference between that report and the bill as far as the passport revocation goes. In the committee report, I read it to state that if an offer in compromise or installment agreement was pending, the tax debt would not cause a person to be labeled a "seriously delinquent" taxpayer.
However, the bill states that a person will not be certified as a "seriously delinquent" taxpayer if the debt "is being paid in a timely manner pursuant to an agreement to which the individual is a party under section 6159 or 7122" (the code sections dealing with installment agreements and offer in compromises). This could be taken to mean that a debt could cause someone to be classified as a "seriously delinquent" taxpayer while they have an installment agreement or offer in compromise pending. It is my position that this could also mean a pending request, at least in regards to offers, as under the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA), would require the taxpayer to make timely payments while their offer is being considered. However, this does not mean that the IRS will interpret the wording the same way that I do.
