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Passport control: New legislation in the US provides the IRS with another tool for collecting delinquent taxes

While seemingly unrelated on its face, the recently-passed Surface Transportation Re-authorization and Reform Act of 2015 should be of significant interest to US taxpayers working outside the United States, or those who frequently travel internationally for business or pleasure. Additionally, all taxpayers with significant outstanding tax matters before the Internal Revenue Service should take special note of recent developments that result from this legislation. This article, originally published in "Global Tax Weekly," discusses these developments.

A new era in combating significant tax delinquencies

While seemingly unrelated on its face, the recently-passed Surface Transportation Reauthorization and Reform Act of 2015 (STRR)1 should be of significant interest to US taxpayers working outside the United States, or those who frequently travel internationally for business or pleasure. Additionally, all taxpayers with significant outstanding tax matters before the Internal Revenue Service (IRS) should take special note of recent developments that result from this legislation.

The STRR Act (hereinafter "the Act"), which went into effect on January 1, 2016, marks a new era in combating significant tax delinquencies. Under the Act, the US Secretary of State now has authority to, and in some cases is required to, make passport decisions based upon information provided by the IRS. Under the defined circumstances, such action can include denying new passport applications or renewals or revoking currently-in-force passports.

Contained in the "Finance" section of the Act, the apparent intent of the new passport rules is to encourage compliance with past and present tax matters. It would seem that Congress' hope is that these new rules will inspire an in-flow of funds from currently-outstanding tax liabilities. Importantly, this marks one of the first times that the US Internal Revenue Service and the US State Department will share information to combat significant tax deficiencies.

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Excerpts from the article

Transportation Funding Act Of 2015: Consequences to passport holders and applicants

Under the Act, the Secretary of State can make passport determinations related to tax matters for taxpayers with "seriously delinquent tax debt" of more than USD50,000.

i. Seriously delinquent tax debt

Taxpayers that have significant outstanding tax matters with the IRS may see their passport, or passport application, affected directly. For the purposes of the Act, a tax debt is considered "seriously delinquent" if a notice of lien has been filed in public records, or a notice of levy has been filed. Under current practices, the IRS provides written notice to taxpayers receiving notices of lien or levy.

For new or renewal passport applications made by persons with seriously delinquent tax debt of more than USD50,000, the Secretary of State is required to deny any such application. Additionally, for taxpayers with currently-in-force passports, the Secretary has the authority to revoke such passports. In cases of revocation, a current passport may be limited to only allow US return travel, or a new temporary passport may be granted for this purpose.

ii. Exceptions

Notwithstanding the potential for denying or revoking a taxpayer's passport, the Secretary retains the authority to issue a passport to otherwise-covered individuals for emergency circumstances or humanitarian reasons.

Taxpayers with greater than USD50,000 of outstanding tax debt, but whom are currently making payments under an IRS-approved repayment plan, are exempt from these rules. Also exempted are those debts from which collection is suspended pending a Due Process hearing.

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