Renewing Your United States Passport? BEWARE!

iStock_passportXSmallState Department Turns Over Your Social Security Number & Location To The IRS

Non-compliant United States taxpayers living abroad are getting nervous. If an informant seeking a hefty IRS reward or FATCA doesn’t rat them out first, then the State Department will. This can happen when the non-compliant taxpayer renews his or her US passport.

Traditionally, the functions of the US Treasury and the Department of State were completely separate. However, we are seeing a continued erosion of this distinction as troubling economic times continue. The US passport renewal form mandates that the applicant supply his Social Security Number (SSN) if he has one. 

This is authorized by Internal Revenue Code Section 6039E, enacted in 1986. The legislative history to that section makes clear that over 25 years ago Congress was aware that US persons residing overseas were not filing US tax returns even though required to do so. Congress intended to increase tax compliance of US citizens living outside the United States through its enactment of this tax provision. The IRS has continued to drag its feet in promulgating Treasury Regulations that can offer more guidance. Recently, the IRS has renewed its interest in the topic. In January of 2012, the IRS withdrew old proposed Regulations that had been issued in 1992 and issued new ones dated January 26, 2012. We are still waiting for these Regulations to be finalized over one year later!

Regardless of how slow the IRS is moving on the Regulations project, make no mistake about it, the statutory provision is being enforced. A $500 penalty applies for failure of a passport applicant to provide the SSN, unless reasonable cause can be established. In addition, the State Department MUST turn over to the IRS some damning information from the application – the statute mandates that it must provide your SSN and foreign residence information to the Department of Treasury. If you refuse to submit the SSN, the State Department MUST still provide your identifying information to the IRS indicating you have refused to give the information. So, whether you reveal your SSN on the passport form or refuse to do so, you lose either way! The IRS will be made aware of you and can commence its investigation into your tax compliance history.

SOLUTION? Get into tax compliance now – at least before you need to renew your US passport.

Delinquent taxpayers should seek qualified tax advice from a US taxation attorney and discuss the risks and tax issues associated with the various options to remedy their situation. They should learn about the IRS Voluntary Disclosure programs and working under attorney-client privilege (which is not available with an accountant) and then arrive at the best solution given their particular facts.

Various options are available to remedy the situation. For example, some taxpayers decide to file the late tax returns and / or FBARs by a so-called “quiet filing” or “quiet disclosure”. This choice carries its own set of significant risks. Other taxpayers decide to enter the IRS Offshore Voluntary Disclosure program. Other taxpayers may qualify for a “Streamlined” correction of delinquent filings. All of the possible options should be thoroughly examined with a US tax attorney who has experience in this highly volatile area.

Virginia La Torre Jeker J.D., has been a member of the New York Bar since 1984 and is also admitted to practice before the United States Tax Court. She has 30 years of experience specializing in US and international tax planning as well as international commercial transactions. She has been based in Dubai since 2001; prior to that time she worked in Hong Kong for 15 years as a US tax consultant for international law firms, major banks (including HSBC) international accounting firms (Deloitte) and trust companies. Early in her career she worked in New York with the top-tier international law firm, Willkie Farr & Gallagher.

Virginia is regularly asked to speak at numerous conferences and seminars for various institutes and commercial organizations; publishes a vast array of scholarly works in her area of expertise, been interviewed by CNN and is regularly quoted (or has her articles featured) in local and international publications. She was recently appointed to the Professional Tax Advisory Council, American Citizens Abroad, Geneva, Switzerland. She was a guest lecturer at the University of Hong Kong, LL.M Program (Law Department) and served as an adjunct Business Law professor at the American University of Dubai and at the American University of Sharjah where she also taught the legal / ethical aspects of internet law and internet based transactions.

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1 comment on “Renewing Your United States Passport? BEWARE!”

  • The information about passport information availability to the IRS is trivial: Somewhat scarier to those in an irregular situation is IRS access to TECS (IRM 5.1.18.14) with visa and travel information. Such a person may be surprised after presenting a passport (US or other) to an immigration inspector at a port of entry. Automatic number plate readers make it risky for such persons to travel even with, say, a Canadian-registered car in the USA if somehow the border has been safely crossed.

    For the IRS to have overseas residence information of a taxpayer unable or unwilling to settle a debt is somewhat less “risky” since IRS attachés with diplomatic status have limited investigatory powers without assistance of the local government. And a US citizen in Canada, if s/he also has Canadian nationality, isn’t covered by the mutual collection agreement.

    When you get into passport issues you encounter an unruly animal. Foreign countries may give up their banks to the IRS. But will they give up their (dual) citizens resident in their country? And how about “transferee liability”?

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