In what looks like a certainty to be passed into law, the House and Senate have separately passed versions of a highway bill that includes the necessary language to restrict the passports of those owing over $50,000 to the IRS. This bill, according to hill.com, should make it to the president's desk before Thanksgiving.
In previously-proposed bills (which never quite made it to law), those who have worked out a collection alternative with the IRS — such as entering into Currently Non-Collectible (CNC) status, getting an installment agreement in place, or had an offer in compromise accepted — were not to have their passport status affected.
UPDATE 8-17-2015: The IRS Customs Hold.
Passports aside, there may be a nasty surprise awaiting US persons on their return to the United States – the Customs Hold:
International revenue officers can request that a Customs Hold be input into the Treasury Enforcement Communication System (TECS) for delinquent taxpayers. Once the taxpayer is on the TECS, the U.S. Department of Homeland Security (DHS) notifies the IRS whenever the taxpayer travels into the United States. During our interviews with a judgmental sample of 15 international revenue officers and all five group managers, many identified the Customs Hold as one of the most effective enforcement tools available to them in dealing with delinquent international taxpayers. International revenue officers use information obtained through a Customs Hold to attempt to contact the taxpayers while they are in the United States and/or locate the taxpayers’ assets.
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A terrific blog article, written by John Weiland, about whether the IRS was restricting passports was recently forwarded to me. Mr. Weiland writes:
American citizens often believe they are able to leave the country and return whenever they like, but that is not actually the case…. In order to travel outside the United States, one must also be eligible for a US passport. Unfortunately, many people are not able to qualify for a US passport because they have been ordered by a court not to leave the country or because they are behind in child support payments.
Now, the IRS has gained access to Customs & Border Patrol databases, has the ability to red flag the names of individuals, and prevents them from leaving the United States. A new law has also been proposed (emphasis added) that would allow the IRS to revoke the passports of any United States citizen who owes at least $50,000 in back taxes. Furthermore, the revocation can take place without the individual being charged with tax evasion.
To clarify, this law has only been proposed. The IRS passport law has not been passed. So, as things stand currently, the IRS cannot revoke the passport of any US citizen who owes more than $50,000 in back taxes (however, the government may withhold a passport for other reasons).
IRS and passport databases
Another hot topic Mr. Weiland mentions is the Customs & Border Patrol databases and how the IRS has gained access. However, despite the worrying nature of this IRS access, it's important to note that there are more databases available to the IRS than just this newest acquisition. The Internal Revenue Manual (IRM) Section 184.108.40.206 describes something called the "Treasury Enforcement Communications System."
The Treasury Enforcement Communications System (TECS) is a database maintained by the Department of Homeland Security (DHS), and it is used extensively by the law enforcement community. It contains information about individuals and businesses suspected of, or involved in, violations of federal law.
For IRS Field Collection , TECS provides two sources to help make contact with taxpayers or locate assets:
Revenue officers can request that delinquent balance due taxpayers be entered into TECS, and the Department of Homeland Security (DHS) will then advise IRS when those taxpayers travel into the United States for business, employment, or personal reasons. The taxpayers entered into TECS for this purpose are on a DHS lookout indicators list. IRS employees must help maintain the TECS database by requesting that appropriate taxpayers be entered into TECS or be deleted from TECS. (See IRM 220.127.116.11.6.1 for criteria for including taxpayers in TECS database.)
Revenue officers can also request information housed in TECS on past travel that a taxpayer has made to and from the United States.
What this boils down to is the reality that the IRS is part of the Treasury Department database, not just to find the US persons that are living overseas, but also their assets. Additionally, the IRS will be alerted when these same persons enter or leave the US, where they are going, and where they are coming from.
The IRS can monitor how long you are in the US, and there are consequences
Mr. Weiland also makes an additional and important observation:
American citizens are not the only individuals being targeted. Recently, foreigners visiting the United States on a visitor’s visa or other non-immigrant visa were provided with online access to their travel history for the past five years This is important information as visitors who spend more than 182 days in the US during any single year or an average of 122 days per year over the course of a three-year period are actually required to file tax and information reporting returns in the United States. Reports have already been issued that some non-resident, non-immigrant foreign nationals have been detained at the border due to taxes that the IRS alleges they owe.
This is of critical importance and something that can be easily overlooked, especially for US persons who have renounced their citizenship and revisit the US for too long. They could re-trigger all US tax-filing obligations and foreign account reporting, making their previous renunciation a nullity.
Renunciation of US citizenship can make sense for people who know they will only be limited travelers to the United States. For those with family still here, who have the possibility of coming back and caring for a sick relative at some point in their lives, expatriation for tax purposes may not make the most sense (as we saw, a US presence can trigger an tax obligation that the IRS can find out about). For the ambitious, there are legal tax avoidance alternatives that have been tested and actually work; here is one that I have been a fan of for a long time.
If you are nervous about taxes you owe affecting your passport or need any assistance, contact us. We can help.