Unpaid Taxes Can Result in Your U.S. Passport Being Revoked
As if FATCA weren’t enough to jolt the U.S. tax system, another significant weapon has just been added to the government’s arsenal in its battle against tax delinquency. On December 4th, President Obama signed a 5-year infrastructure spending bill, which adds new Section 7345 to the Internal Revenue Code. This new section authorizes the denial, revocation, or limiting of a delinquent taxpayer’s U.S. passport.
While FATCA focuses more on foreign asset reporting, the new law focuses on overdue tax payments. According to the law, taxpayers with a “seriously delinquent tax debt” of $50,000 or more (which is to be adjusted for inflation) may have their passports denied, revoked, or otherwise limited. The law defines a seriously delinquent tax debt as one for which the IRS has already filed a notice of lien or notice of levy. Thus, for instance, if a taxpayer is in the process of contesting an IRS tax bill, such taxpayer should not yet be considered seriously delinquent.
It’s important to note that the $50,000 minimum debt amount includes interest and penalties. In this regard, if you do not pay your taxes by the due date, you will generally have to pay a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid. This penalty can be as much as 25 percent of your unpaid taxes. With this in mind, it may not be very difficult for late taxpayers to cross the $50,000 threshold rather quickly.
The statutory language contained in the new law offers few details about how exactly the punishment will be administered and to what extent exceptions will apply. Currently, the law provides exceptions for “emergency situations” and “humanitarian situations,” but does not elaborate on the meaning or scope of these terms.
If you have failed to file or pay your taxes, now is your chance to come clean with the IRS and avoid potentially severe penalties, including the cancellation of your U.S. passport in the near future. A number of options are now available for delinquent taxpayers, including several IRS amnesty programs. Popular among these programs are the Streamlined Procedures, which the experts at Expat Tax Professionals have helped a number of clients take full advantage of in order to become compliant without paying penalties. Each option has its advantages and disadvantages, and choosing the best way forward requires a careful analysis of your particular facts and circumstances. Our experts at Expat Tax Professionals are available to help discuss your options and assist you with becoming completely tax compliant.
By Ephraim Moss, Esq. & Joshua Ashman, CPA