If You Owe Taxes, Might You Be Forbidden a Passport?

I recently got a “Notice of intent to seize (levy) your property or rights to property” from the IRS with respect to my unpaid federal taxes.

This is standard procedure. The IRS does this soon after I don’t respond to their initial letter asking me to pay up. They send the notice of intent to levy letter by certified mail, meaning I’m to sign for it at the time of delivery, as a way of trying to make it seem more like a big deal than their usual letters.

The letter, and an accompanying copy of Publication 594 (“The IRS Collection Process”) give some more clues about how the government may decide to enforce its new powers to refuse or to revoke passports for people with large amounts of unpaid taxes. The impression I’d had before is that the law requires the IRS to notify the State Department once somebody’s unpaid taxes (plus penalties and interest) exceeds $50,000, and at that point the State Department may rescind that person’s passport, refuse to issue that person a passport, refuse to renew that person’s passport, or restrict that person’s passport so that it will no longer be good for anything but reentry into the United States. But I didn’t have much to go on, and I haven’t heard of any cases of this law actually being used yet, so it’s hard to know exactly what to expect.

But here’s how the IRS puts it in Publication 594:

IRS action affecting passports

The Fixing America’s Service Transportation (FAST) Act of , enacted by Congress and signed into law on , requires the Internal Revenue Service to notify the State Department of taxpayers certified as owing a seriously delinquent tax debt. Seriously delinquent tax debt means an unpaid, legally enforceable federal tax debt of an individual totaling more than $50,000 (including penalties and interest) for which a Notice of Federal Tax lien has been filed and all administrative remedies under IRC § 6320 have lapsed or been exhausted, or a levy has been issued. If you are individually liable for tax debt (including penalties and interest) totaling more than $50,000 and you do not pay the amount you owe or make alternate arrangements to pay, we may notify the State Department that your tax debt is seriously delinquent. The State department generally will not issue or renew, and may revoke, your passport after being notified of your seriously delinquent tax debt. For additional information on passport certification visit www.irs.gov/passports.

The “Notice of intent…” letter contains similar text:

Denial or revocation of United States passport

On , as part of the Fixing America’s Service Transportation (FAST) Act, Congress enacted section 7345 of the Internal Revenue Code, which requires the Internal Revenue Service to notify the State Department of taxpayers certified as owing a seriously delinquent tax debt. The FAST Act generally prohibits the State Department from issuing or renewing a passport to a taxpayer with seriuosly delinquent tax debt.

Seriously delinquent tax debt means an unpaid, legally enforceable federal tax debt of an individual totaling more than $50,000 for which, a Notice of Federal Tax lien has been filed and all administrative remedies under IRC § 6320 have lapsed or been exhausted, or a levy has been issued. If you are individually liable for tax debt (including penalties and interest) totaling more than $50,000 and you do not pay the amount you owe or make alternate arrangements to pay, we may notify the State Department that your tax debt is seriously delinquent. The State department generally will not issue or renew a passport to you after we make this notification. If you currently have a passport, the State Department may revoke your passport or limit your ability to travel outside of the United States. Additional information on passport certification is available at www.irs.gov/passports.

I took another look to see if I could find what the law requires of the State Department once it receives such a certification. What must they do, versus what may they do. Here’s what I found:

Authority to Deny or Revoke Passport.—

  1. Denial.–
    1. In general.— Except as provided under subparagraph (B), upon receiving a certification described in section 7345 of the Internal Revenue Code of 1986 from the Secretary of the Treasury, the Secretary of State shall not [emphasis mine —♇] issue a passport to any individual who has a seriously delinquent tax debt described in such section.
    2. Emergency and humanitarian situations.— Notwithstanding subparagraph (A), the Secretary of State may issue a passport, in emergency circumstances or for humanitarian reasons, to an individual described in such subparagraph.
  2. Revocation.–
    1. In general.— The Secretary of State may [emphasis mine –♇] revoke a passport previously issued to any individual described in paragraph (1)(A).
    2. Limitation for return to united states.— If the Secretary of State decides to revoke a passport under subparagraph (A), the Secretary of State, before revocation, may [emphasis mine —♇]–
      1. limit a previously issued passport only for return travel to the United States; or
      2. issue a limited passport that only permits return travel to the United States.

The www.irs.gov/passports reiterates this:

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.

I also noticed something new that showed up on my IRS Account Transcripts last month:

I’d never seen this notation before, and hadn’t noticed anything new happen on or about . That particular 971 code isn’t listed at this voluminous list of IRS transaction codes, nor in the IRS’s own Document 6209 in which these codes are spelled out.

I dug around some on-line and found very little information, but tax agent Patti Logan was also sniffing around on the same trail, and here’s what she uncovered:

…the “Initial levy imposed” that we are finding on some of our clients’ account transcripts… is a first step in identifying which accounts meet the criteria of IRC 7345 for passport revocation, denial or limitation. There are four criteria for individuals to have their passport sent to the Secretary of State: 1) Tax must be assessed 2) taxpayer must owe over $50,000 3) a levy has been served in the past or 4) a lien was filed on the account.

So, IRS came up with a new code, transaction code 971 with action code 640, which shows up on the transcript with “initial levy imposed.” This just indicates an account that has had a levy served in the past. It is being put on all individual accounts where a levy has been served no matter if the taxpayer owes $50,000 or not. The other criteria must still be met. So it is not telling the taxpayer that they have been reported to the Secretary of State but it is a first step.…