The idea of tying travel to taxes has been percolating in Washington for years. The IRS and Justice Department cooperate. For example, they can have tax cheats arrested when they land on U.S. soil. Adding to the mix is FATCA, the Foreign Account Tax Compliance Act, which penalizes foreign banks that don’t hand over American account holders. But, now, the feds want to go after people even if they are reporting everything correctly, but have unpaid tax debts.
Congress thinks America should do more to grab people on the move, or to prevent them from traveling in the first place. And unlike prior bills on this topic that have stalled in Congress, this one is about to become law. It is part of H.R.22, which has passed both the House and the Senate. It is in conference, so something could change. But it is expected to pass, adding new section 7345 to the tax code. The title of the section is “Revocation or Denial of Passport in Case of Certain Tax Delinquencies.” The idea goes back to 2012, when the Government Accountability Office reported on the potential for using the issuance of passports to collect taxes. Sen. Harry Reid (D-Nev.) got on board, and then Sen. Orrin Hatch wrote a Memo to Reporters and Editors. The idea has grown in popularity since then.
The State Department could revoke, deny or limit passports for anyone the IRS certifies as having a seriously delinquent tax debt in an amount in excess of $50,000. It is supposed to be a little like having outstanding parking tickets. You might have to pay them to be able to register your car or renew your driver’s license. But critics say the right to travel is fundamental and constitutional.
This time, it is expected to pass as part of the pending highway bill. It means in January of 2016, the State Department will start blocking Americans with ‘seriously delinquent’ tax debts. Administrative details about how all this will work are scant. But in all likelihood, it will mean no new passport and no renewal. It could even mean the State Department will rescind existing passports of people who fall into that category.
The list of affected taxpayers will be compiled by the IRS. The IRS will use a threshold of $50,000 of unpaid federal taxes. But this $50,000 figure includes penalties and interest. And as everyone knows, interest and penalties can add up fast. Notably, if you are contesting a proposed tax bill administratively with the IRS or in court, that should not count. That is not yet a tax debt.