What To Do With Seriously Delinquent Taxes
The IRS has started to employ a new and creative method to force taxpayers to the table. More and more we are seeing the IRS referring cases to the state department and ultimately going after taxpayers’ passports. The State Department generally will not issue a passport to you after receiving certification from the IRS. Upon receiving certification, the State Department shall deny your passport application and/or may revoke your current passport. If your passport application is denied or your passport revoked and you are overseas, the State Department may issue you a limited validity passport good only for direct return to the United States.
IRS began referring such balances to the State Department in February 2018. Additionally, 6152 began going out in July of 2019.
What exactly is “seriously delinquent tax liability”? To the average person reading that description it sounds more like an opinion than a legal definition. However, in this context “seriously delinquent tax liability” is what’s known as a term of art, or more formally, as a legally operative phrase. Essentially,in any other context there is no definition to what would constitute “seriously delinquent”. As a kid my mom might have said that I was “seriously delinquent” in cleaning my room, could have been a day, could have been a month. The bottom line is it had no hard definition, and in the case of the IRS it does. The IRS has defined “seriously delinquent tax liability” as a balance owed to the IRS of at least $53,000.00, where a federal tax lien has been filed, all methods of normal collection actions and sequences have been unsuccessful in collecting the balance, and/or a levy or garnishment has also been put into effect to no avail.
Given that the designation “seriously delinquent tax liability” seems so broad and amorphous, one would think that it applies to any balances that meet the above stated criteria ($53,000 and above, lien filed, exhaustion of other collection remedies, and/or levy), but there are some limitations in scope to what the IRS can classify as “seriously delinquent”. If a balance is being paid timely with an IRS-approved installment agreement it will not be referred to the state department for potential action against a passport. Along the same lines, a balance being paid timely with an offer in compromise accepted by the IRS will not be certified as “seriously delinquent”. Additionally, for both an offer in compromise and a tax liability installment agreement, the pending acceptance of either will temporarily keep a taxpayer’s passport protected. This means that during the time that the Internal Revenue Service is considering whether to accept a formally submitted request for an installment agreement a taxpayer will remain out of harm’s way, and even more substantially, that in the months long process it takes for an offer in compromise to be considered (sometimes up to a year) they too will remain safe from state department certification as “seriously delinquent”. Similar to how it works with an offer in compromise, in a criminal context, a settlement agreement entered with the Justice Department for which a collection due process hearing is timely requested regarding a levy to collect the liability for which collection has been suspended because a request for innocent spouse relief has been made will prevent state department certification. Following along the same logical path, a taxpayer who is experiencing a hardship that is formally recognized by the Internal Revenue Service as placing them into currently non-collectible status will also receive the same protection for state department certification. The clear pattern is that as long as you are in or actually attempting to get into a formal resolution with the IRS for your balance, the IRS is not going to make trouble with your passport.
There are several situations, external to Internal Revenue Service classifications that will also allow a taxpayer who otherwise would be eligible to have their passport certified to the state department to remain protected. If a taxpayer has filed for bankruptcy and the bankruptcy has yet to be discharged their passport is not in danger of being certified. Anyone in a federally designated disaster zone will also remain protected. And finally, any enlisted military members on active duty will not have any action taken on their passport.
The IRS is required to notify you in writing at the time the IRS certifies seriously delinquent tax liability to the State Department. The IRS is also required to notify you in writing at the time it reverses certification. The IRS will send written notice by regular mail to your last known address. The first notice in this sequence is a 508c letter, stating that the IRS has placed the classification of seriously delinquent on your account. The next notice is letter 6152, stating that the IRS will consider asking the Department of State to revoke a passport. Before the IRS sends a revocation referral to the Department of State, the IRS will issue letter 6152 giving the taxpayer a 30 day window to make arrangements with the IRS to either pay the balance down below the $53,000 mark or pay the balance in full.
The next step in the process is having your passport actually revoked. If your U.S. passport application is denied or your U.S. passport is revoked, the State Department will notify you in writing. If you need your U.S. passport to keep your job, once your seriously delinquent tax liability is certified, you must fully pay the balance or contest the the certification.
As an example to highlight just how serious this situation can get, I have personally dealt with clients who have been abroad while their passport was revoked. The IRS sees passport revocation as a very powerful and effective tool to force taxpayers who owe balances to really feel the squeeze. And I can tell you personally, the number of cases that we see involving passport issues and seriously delinquent certification are only growing. If you ignore the warning signs and do not take the proper steps to protect your passport it will happen. That’s why staying ahead of the game and having experienced and knowledgeable representation handling your case, like the professionals at The W Tax Group, is the best avenue to keeping your passport safe.