By Kenneth M. Horwitz, JD, CPA-Dallas; Christina A. Mondrik, JD, CPA-Austin; and William R. Stromsem, JD, CPA
IRC section 7345, enacted in the Fixing America’s Surface Transportation Act of 2015 (FAST), provides for revocation of passports or denial of passport applications or renewals for taxpayers who are certified by Treasury to the U.S. State Department to owe more than $50,000 in “seriously delinquent” federal tax debt. The Treasury Department plans to implement the provision this year without requesting public comments. Representing CPAs in a border state, TSCPA’s Federal Tax Policy (FTP) Committee felt compelled to submit two comment letters to the IRS regarding implementation of this statute, one on July 12, 2016, and another March 9, 2017.
The FTP’s recent comment letter supported efforts to keep delinquent taxpayers from fleeing the country to avoid paying legitimate taxes. It also expressed several concerns, such as appropriate due process before denying travel rights and policies to protect against unauthorized disclosure of taxpayer information. IRS’ Small Business/Self Employed Division Commissioner Mary Beth Murphy replied to the committee’s letter on March 30, 2017. We are pleased that Treasury accepted a number of our recommendations.
No Opportunity for Public Comments
The committee encouraged the IRS to seek public comments to improve procedures (currently listed on its website) prior to implementation. However, Treasury opined that the section is sufficiently clear and self-executing and informed us the IRS will not seek public input. The IRS has added Internal Revenue Manual (IRM) sections 188.8.131.52 and 184.108.40.206.5., and plans to issue a notice in the Internal Revenue Bulletin before moving forward.
Due Process Issues
No Administrative Appeal of Passport Denial
We were concerned that a taxpayer’s only recourse for a revoked or denied passport due to tax debt is to file a lawsuit in federal district court or U.S. Tax Court. This process is prohibitively expensive and the taxpayer may be unable to travel abroad during a potential lengthy appeal. The Treasury Department noted that section 7345 only provides for judicial appeal and that taxpayers would have previously been afforded the opportunity for administrative appeal rights on the tax liability that caused the delinquency and on the collection process.
Lack of Notice
The IRS plans to issue Notice CP 508C of an impending passport revocation to the taxpayer’s last-known address by regular mail. The FTP asked that the notice be sent certified mail to highlight the importance of the correspondence and ensure its receipt. This could be a problem for a traveling taxpayer who might get the initial notice at a border crossing. Treasury did not agree with mail delivery evidence because the taxpayer has 90 days to take action.
We also encouraged warnings in tax notices leading up to the passport action. The IRS agreed to reference section 7345 in notices and publications, and expects the State Department to communicate with applicants based on addresses in passport applications. In fact, the IRS has already begun including language regarding potential denial or revocation of U.S. passports in its final notices of intent to levy, which inform taxpayers of their rights to collection due process hearings.
The FTP was concerned about protecting taxpayer privacy as personal identifying information is shared with State Department employees. We encouraged procedures to protect against unauthorized disclosures. In response, Murphy noted that all U.S. government personnel, including State Department employees, are required to maintain confidentiality of taxpayer data.
Taxpayer Cannot Pay
The committee requested additional guidance in cases where the IRS finds that the delinquent taxes are “currently not collectible” and where a taxpayer is in bankruptcy proceedings. In addition, a taxpayer who is making payments or negotiating in good faith should be allowed to travel outside the country, particularly where business travel will help earn money to pay the debt. Treasury said it would address these concerns before implementing section 7345.
The FTP was concerned about timely restoring a taxpayer’s travel privileges upon resolution. Treasury said that it would work with the State Department to minimize delays.
The committee asked if a taxpayer with dual citizenship whose U.S. passport is revoked could obtain a travel visa. Murphy indicated that the State Department would make that decision.