Opening Or Maintaining An Open Case With TAS Will No Longer Suspend IRS Certification To Secretary Of State

IRS

Executive Summary
Solely opening or maintaining an open case with the Taxpayer Advocate Service (TAS) will no longer suspend IRS Certification to the Secretary of State with regard to a taxpayer’s seriously delinquent tax debt.

DISCUSSION

On December 4th, 2015, Public Law 114-94 “Fixing America’s Surface Transportation Act” (“FAST”) was signed into law by President Obama.  More commonly referred to as the highway bill, FAST authorizes the spending of approximately $205BB on highways and $48BB on transit projects over a five-year period.[1]  Included in the legislation is a provision generally requiring the revocation or denial of passports in the case of certain unpaid taxes.[2]  According to the IRS, the program has resulted in $1.2 billion in tax payments from taxpayers who the IRS certified to the State Department as being seriously delinquent in their tax debt.[3]

The Act, codified at IRC § 7345, requires the Commissioner of Internal Revenue (“Commissioner”) to certify “seriously delinquent tax debts” to the Secretary of State, for the purpose of denying, revoking or limiting the associated taxpayer’s passport.  The Commissioner must report the identity of the delinquent taxpayer and the amount of the delinquency[4] to the Secretary of State for the “purposes of, and to the extent necessary in, carrying out the requirements of section 32101 of the FAST Act.”[5]

A seriously delinquent tax debt is defined as an unpaid, legally enforceable Federal tax liability of an individual (A) which has been assessed, (B) which is greater than $50,000[6], and for whom (C) an IRC § 6323 lien has been filed[7] or § 6331 levy has been made.[8]  Once the Commissioner certifies the tax debt to the Secretary of State, they are required to deny or revoke the taxpayer’s passport, with limited exception for things like “humanitarian” purposes.

The IRC provides that the certification will be reversed when the debt is fully satisfied, innocent spouse relief is elected, an installment agreement or offer-in-compromise is entered into or if the certification is found to be erroneous.[9]  Further, an open case with the TAS would suspend the certification, at least until the matter was resolved.  However, new guidance available here, reveals that the blanket suspension of certification for merely opening a case or maintaining  a case with the TAS provides an overbroad result.  Effectively, a loophole is created which allows any taxpayer to file with the TAS and avoid the regime – for example, allowing a “won’t pay” taxpayer to circumvent the intent of the legislation to obtain or renew a passport.

The Service has encouraged taxpayers to obtain assistance from TAS if they believe that they qualify for a statutory or discretionary exclusion to keep them from being certified with the State Department as having a seriously delinquent tax debt.

The Taxpayer Assistance Center Office Locator tool is available here.

Written By Walt Witman

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[1] https://thehill.com/policy/finance/262049-senate-sends-highway-bill-to-obama.

[2] IRC § 7345.

[3] IRS.gov, Update on Passport Certifications and Taxpayer Advocate Service, October 16th, 2019, last visited on October 22nd, 2019, available at https://www.irs.gov/newsroom/update-on-passport-certifications-and-taxpayer-advocate-service.  It’s unclear how this was determined by the IRS, and what amount (if any) was cannibalized from existing programs or would have been paid irrespective of the existence of the certification regime.

[4] IRC § 6103(K)(11)(A)(i).  Authority for Information Sharing, allowing the disclosure of return information to the Secretary of State for purposes of passport revocation under this section, and to include both the identity of the taxpayer and the amount of the serious delinquency.

[5] IRC § 6103(K)(11)(B).  Entitled restriction on disclosure, stating that it “may be used by officers and employees of the Department of State for the purposes of, and to the extent necessary in, carrying out the requirements of 32101 of the FAST Act.”

[6] The IRC provides for inflation, increasing the amount of a significant tax debt by multiplying the dollar amount by the cost of living adjustment, and rounding to the nearest multiple of $1,000.

[7] IRC § 7345(b).  With regard to the notice of lien filed pursuant to IRC § 6323, the administrative rights under § 6320 must have been exhausted or have lapsed.  See IRC § 7345(b)(1)(C)(i).

[8] Ibid.

[9] IRC § 7345(c)(1):(2).

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