In December of 2015, the Fixing America’s Surface Transportation (“FAST”) Act was signed into law. This year, one of its provisions went into effect which requires the IRS to notify the State Department of taxpayers who owe a “seriously delinquent” tax debt. When the State Department receives such notification, it may deny an application for a passport or a passport renewal, and may even revoke an otherwise-valid passport.
A “seriously delinquent” tax debt is: (i) a federal tax liability of $50,000 or more, including fees and penalties; (ii) for which a notice of federal tax lien has been filed; and (iii) the taxpayer’s right to a hearing has been exhausted or lapsed. The liability amount will be adjusted for inflation each year. While it may seem nearly impossible to owe so much money to the IRS, it happens more often than you might think. The liability amount includes money owed from all previous years, so someone who is even just a few years behind on their taxes might already be cutting it close.
The penalties and interest that accumulate on unpaid tax debts also add up quickly. For example, if you own foreign bank accounts, brokerage accounts, mutual funds, or trusts which exceed certain thresholds, you are probably required to file a Report of Foreign Bank and Financial Accounts (“FBAR”) with your taxes. A non-willful failure to file an FBAR for a single one of these accounts can result in a civil penalty of $10,000. A willful failure to file an FBAR can result in a $100,000 civil penalty. There are dozens, if not hundreds, of other penalties, fines, and fees which the IRS can assess for an improperly filed tax return.
Thankfully, this rule is not quite as draconian as it might first appear, and seriously delinquent taxpayers can take certain steps to prevent the loss of their passports. Short of paying the full amount owed, taxpayers who have enter into an IRS-approved installment agreement, an offer in compromise accepted by the IRS, or a settlement agreement with the Department of Justice, are not considered “seriously delinquent” as long as they keep up with their payment obligations. For individuals who must travel abroad for business, making these payments on time could mean the difference between keeping and losing their job.
If you are in danger of becoming “seriously delinquent” on your taxes, make sure you seek legal representation. The lawyers at Camden & Meridew are experienced in helping clients work with the IRS and make your tax debt more manageable. To call and speak with an attorney, call (317) 770-0000.
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