FAST Act Causes Travel Delays (and Headaches) for Seriously Delinquent Taxpayers
Effective January 1, 2018, U.S. taxpayers with over $50,000 of seriously delinquent tax debt (including interest and penalties) face passport denial, revocation, or limitation. An obscure provision of the 2015 Fixing America’s Surface Transportation (FAST) Act authorized the IRS to issue certifications to the State Department for the purpose of denying, revoking or limiting passports of “seriously delinquent taxpayers.” If a taxpayer is certified as being seriously delinquent, that certification remains in place until the debt is paid in full or the IRS accepts the taxpayer’s Installment Agreement or Offer in Compromise.
If you have a question regarding your specific situation, please contact a member of our Tax Practice Group.
Questions and Answers Regarding IRS Certification of Seriously Delinquent Taxpayers
Question 1: What is the FAST Act, and why am I only hearing about this now?
The Fixing America’s Surface Transportation (FAST) Act was signed by President Obama on December 4, 2015. While the introductory language to the FAST Act described it as “An act to authorize funds for Federal-aid highways, highway safety programs, and transit programs,” it also included provisions implementing a variety of other programs.
Section 32101 of the FAST Act enacted Internal Revenue Code section 7345, which authorizes the State Department to deny, revoke or limit the passport of a taxpayer the IRS has certified as being “seriously delinquent” in his tax obligations. While the FAST Act was passed in 2015, IRS decided it would not begin certifying seriously delinquent taxpayers to the State Department until January 1, 2018. The IRS’ delay in beginning certification proceedings, as well as other significant tax developments during 2016 and 2017, has relegated section 7345 to the proverbial back burner for many taxpayers and their advisors.
Question 2: Why was this provision passed?
Code section 7345 was passed as an “offset provision” of the FAST Act. According to the Center of Budget Policy and Priorities, offset provisions are a requirement of Pay-as-You-Go Rule (“PAYGO”) used by the Senate in approving legislation. PAYGO “is designed to encourage Congress to offset the cost of any legislation that increases spending on entitlement programs or reduces revenues so it doesn’t expand the deficit.” Therefore, the main purpose of this provision was to insure that seriously delinquent taxpayers either paid their tax debt in full, or entered into a payment agreement of some type (either an Offer in Compromise or an Installment Agreement) with the IRS.
Question 3: Who is a seriously delinquent taxpayer?
A “seriously delinquent taxpayer” is a taxpayer that has tax debt meeting the requirements of Code section 7345(b). Under this section, “seriously delinquent tax debt” means an unpaid, legally enforceable Federal tax liability of an individual (1) which has been assessed, (2) which is greater than $50,000 (including interest and penalties), and (3) with respect to which: (a) a notice of lien has been filed pursuant to Code section 6323 and the administrative rights under Code section 6320 with respect to such filing have been exhausted or have lapsed, or (b) a levy is made pursuant to Code section 6331.
Note, however, that “seriously delinquent tax debt” does NOT include: (1) a debt that is being paid in a timely manner pursuant to an Installment Agreement or Offer in Compromise, or (2) a debt with respect to which collection is suspended because: (a) a pre-levy due process hearing is requested or pending, or (b) an innocent spouse election has been made or other equitable relief from joint and several liability has been requested.
Question 4: How do I know if I’ve been certified as a seriously delinquent taxpayer?
Code section 7345(d) requires the IRS to notify you of your certification simultaneously with sending notice of certification to the State Department. They will do so by sending a written Notice CP 508C to your last known address via regular mail.
Question 5: I’ve been notified that the IRS has certified me as a seriously delinquent taxpayer, but that is not correct. What do I do?
Code section 7345(d) requires that your Notice CP 508C contains “a description in simple and nontechnical terms of a taxpayer’s right to bring a civil action for judicial review of your certification.” If the balance shown is not correct, or you have questions on your Notice CP 508C, you should contact your tax advisor to determine the best course of action.
If you and your tax advisor determine that this certification is incorrect, you have the option to request judicial review of the certification by your local United States District Court, or the United States Tax Court. If the court determines that your certification was erroneous, the court may order the IRS to notify the Secretary of State that your certification was erroneous. Code section 7345©(2)(D) requires that the IRS provide the Secretary of State with such notification “as soon as practicable” after the court makes its determination.
Question 6: I was certified as a seriously delinquent taxpayer, but I’ve since paid my debt in full, requested/elected innocent spouse relief, entered into an installment agreement, or negotiated an Offer-in-Compromise with the IRS. Now what happens?
Once you have taken any of the steps above, the IRS will notify the State Department that you have fully paid your debt, or your debt ceases to be a “seriously delinquent tax debt” because you have requested/elected innocent spouse relief, entered into an installment agreement or negotiated an Offer in Compromise. The timeline for the IRS providing notice the State Department depends on the reason for revocation of your certification:
- If you have fully satisfied your tax liability, or your tax liability has become legally unenforceable, such notification shall be made not later than: (i) 30 days after the debt has been satisfied or has become legally unenforceable, or (ii) the date on which you furnish bond to the IRS that is conditioned upon the payment of the amount assessed, together with all interest in respect thereof, within the time prescribed by law).
- If you have elected or requested innocent spouse relief, such notification must be made within 30 days after the date of your election or request for innocent spouse relief.
- If you have entered into an Installment Agreement or Offer-in-Compromise, such notification shall be made not later than 30 days after your Installment Agreement is entered into or 30 days after your Offer-in-Compromise is accepted by the IRS.
Question 7: How do I know when the IRS has processed the revocation of my certification as a seriously delinquent taxpayer?
The IRS will inform you of its revocation of your certification as a seriously delinquent taxpayer by sending a written Notice CP 508R to your last known address via regular mail.
Question 8: I paid down my debt, and the total amount with interest and penalties is now less than $50,000. Can my certification now be revoked?
Unfortunately not. The IRS has provided guidance clarifying that it will NOT revoke a taxpayer’s certification simply because the taxpayer pays the debt below $50,000.Therefore, it is extremely important that you speak with your tax advisor if you have a tax debt that is approaching $50,000 so they can advise you on steps to take that will prevent your certification as a seriously delinquent taxpayer.
Questions and Answers Regarding State Department Denial/Revocation/Limitation of Passports
Question 1: What happens when the State Department receives my certification from the IRS?
Upon receipt of your certification, the State Department may do any of the following:
- Deny your application for a passport (unless you are able to prove that it is necessary for emergency circumstances or for humanitarian reasons);
- Revoke your current passport;
- Limit the scope of your current passport by making it valid only for your return travel to the U.S.; or
- Issue you a limited passport that is only valid for your return travel to the U.S.
Question 2: I know my certification has been revoked, and I want to plan a trip abroad. How do I confirm that the State Department has processed revocation of my certification?
The guidance has not specified how much time the State Department has to process the notices of revocation of certification it receives from the IRS. Therefore, upon receipt of your Notice CP 508R, you should contact the Bureau of Consular Affairs to find out how long it typically takes for a revocation to be processed. The safest course of action would be to refrain from booking any international travel until you have received confirmation that your revocation has been processed.
 P.L. 114 – 94.
 See https://www.cbpp.org/research/federal-budget/policy-basics-the-pay-as-you-go-budget-rule for more information on the history and application of PAYGO.
Code section 7345(f) requires that this amount be adjusted annually for inflation. If any amount as adjusted under the preceding sentence is not a multiple of $1,000, such amount shall be rounded to the nearest multiple of $1,000.
 Code section 7345(b)(1).
 Code section 7345(b)(2).
 See https://www.irs.gov/businesses/small-businesses-self-employed/revocation-or-denial-of-passport-in-case-of-certain-unpaid-taxes for more information on this.
 P.L. 114 – 494, section 32101(e).
DISCLAIMER: The information provided is for general informational purposes only. This post is not updated to account for changes in the law and should not be considered tax or legal advice. This article is not intended to create an attorney-client relationship. You should consult with legal and/or financial advisors for legal and tax advice tailored to your specific circumstances.