American Citizens Abroad Alert / High Important


January 16, 2018


The statutory denial or revocation of an individual’s passport where the individual has a seriously delinquent tax debt was enacted in December 2015. Today, the IRS published a Notice explaining the workings of the new rules. Additional important details have been added to the IRS Internal Manual. An IRS News Release warns “IRS Urges Travelers Requiring Passports to Pay Their Back Taxes or Enter into Payment Agreements; People Owing $51,000 or More Covered”.

Notice 2018-1, 2018-3 IRB 299, dated January 16, 2018.

IRS Internal Manual – Passport Collections Procedures (excerpts).

All of this is happening right now. If there is any question as to whether these rules will be applied in a particular matter, the individual should not delay. He or she should act immediately. In conversations with IRS attorneys, ACA has learned that first steps will begin next Monday, January 22. Certifications of taxpayers’ cases that could be the subject of a denial of an application for issuance or renewal of a passport or revocation or limitation of a passport previously issued will be made by the IRS to the State Department, it is expected, around February 22.

Taxpayers possibly affected by the new law, found in section 7345 of the Internal Revenue Code, should immediately take steps to understand their situation and, where required, guard against IRS actions that might jeopardize their US passport. The new provisions are aimed at taxpayers with a “seriously delinquent” tax debt.  This is generally someone who owes the IRS more than $51,000 ($50,000 adjusted for inflation since date of enactment) in back taxes, penalties and interest for which the IRS has filed a Notice of Federal Tax Lien and the period to challenge it has expired or the IRS has issued a levy.

These special collection provisions (field collection and automated collection) sit on top of complicated existing rules and should not be underestimated. Also, unfortunately, there is always the possibility of mistakes in the handling of collection matters.  A number of the documents are generated “systemically”, meaning they are produced by computer systems.

Some important aspects are just now coming to light. These include: There will be no Treasury Department proposed regulations leading, after a public hearing, to final regulations. The Notice and changes in the Internal Manual are the final word. There will be no possibility of an appeal from a certification to the Appeals Division of the IRS, as is typically the case in audit and other matters. An individual’s only recourse is to file in court – either the United States Tax Court or a District Court. (The Tax Court has amended its rules to provide for the handling of these cases.) Thankfully, in the calculation of the $51,000 threshold, FBAR penalties are not included. An individual once facing a certification cannot make payments to bring the amount down below the threshold, but the amount in question can be increased if additional tax liabilities, etc., are incurred.  State Department, once it receives a certification, will hold open an application for passport renewal for 90 days to allow the individual to resolve certification issues or make a full payment or enter into a satisfactory payment alternative, before denying an application for passport or renewal. Certifications from Treasury Department/IRS to State Department will flow continuously on a weekly basis.

In some cases, a request for a Collection Due Process (CDP) Hearing can cut off or delay problems. Steps must be taken promptly after receiving a proposed levy, a notice of levy or a Notice of Federal Tax Lien.  Such notice will state that taxpayer has the right to request a CDP hearing.  The time period within which to act is short.

A large number of tricky questions can arise with passport certification cases. For example, a certification, in effect, can be reversed or decertified if the taxpayer obtains an abatement of a penalty on the basis of reasonable cause. A request for “reasonable cause” abatement should be approached carefully.

The handling of this matter, it must be emphasized, can be extremely important. Individuals should pay close attention to the subject and consult competent advisors. For one thing, they likely should make sure that they are receiving IRS correspondence, including Notices, in a timely manner. Notices on this subject (Notice CP 508C) are sent to the individual’s last known address. Some related Notices are sent “systemically”, meaning automatically.

This Alert was prepared by Charles the Bruce, Legal Counsel, American Citizens Abroad.  Mr. Bruce is Of Counsel, Bonnard Lawson-Lausanne.  He is solely responsible for any errors.  Guillaume Grisel, Bonnard Lawson-Lausanne, and Michael Durney, Law Offices of Michael C. Durney, Washington, DC, contributed. Comments, questions and corrections should be directed to [email protected].

Copyright © 2018, American Citizens Abroad, Inc., All rights reserved.

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