insight magazine

The IRS Is Coming for Your Passport

IRS Notice CP508C can put an end to taxpayer travels. Here's how to help your tax delinquent clients. By Larry J. Wolfe, CPA and Harold D. Katz, CPA, TEP | Digital Exclusive - 2019


Jane panically called me when she received IRS Notice CP508C, informing her that her passport was being revoked. Poor Jane was planning on traveling overseas in a week with her boyfriend and she was at a loss for what to do.

I told Jane that the CP508C is a notice from the IRS informing her that the IRS has certified to the State Department that she owed a seriously delinquent tax debt (SDTD) in excess of $52,000.

She nervously asked: What can the State Department do?

I explained that if she applied for a passport or a passport renewal, the State Department could deny her application and could not issue a passport to her or renew her current passport. Additionally, the State Department could revoke her current passport and preclude her from traveling internationally. In other words, Jane’s romantic overseas adventure was out of question — until it wasn’t.

I explained Jane’s limited options. She could either request an installment agreement or pay off her balance — all $62,000 of it. Jane was fortunate enough to be able to pay the full liability. I notified the Local Taxpayer Advocate and informed them of her situation. The Local Taxpayer Advocate expedited the passport certification process, which allowed Jane to travel without a hiccup and avoid having to come up with an excuse to tell her boyfriend as to why she couldn’t go on vacation with him as planned.

Safe Passage

The earliest reference to a document granting safe passage to travel across borders is found in the Book of Nehemiah in the Old Testament where the Persian King Artaxerxes provided Nehemiah with a letter requesting that foreign governors offer him safe passage through their territories. In more recent times, Section 707 of Public Law 95-426 signed into law on Oct. 7, 1978 amended Section 215 of the Immigration and Nationality Act, making it “unlawful for any citizen of the United States to depart from or enter, or attempt to depart from or enter, the United States unless he bears a valid passport.”

Further, the Fixing America’s Surface Transportation Act (FAST Act) enacted on Dec. 4, 2015 included IRC §7345, Revocation or Denial of Passport in Case of Certain Tax Delinquencies, which allows the IRS to notify the Secretary of State to deny, revoke or limit a U.S. passport upon certification of a SDTD. This is defined as “an unpaid, legally enforceable federal tax liability of an individual” (tax including assessed penalties and interest) which has been assessed, is more than $50,000 indexed for inflation (current threshold is $52,000), and for which a lien has been filed under IRC §6323 and the administrative Collective Due Process (CDP) rights under IRC §6320 have been exhausted or lapsed, or a levy has been made under IRC §6331.

It’s that simple! If an individual currently owes more than $52,000; a federal tax lien was filed against the taxpayer for all the tax periods covering the federal tax liability; CDP rights have been exhausted and a levy has been issued, the individual could be subject to passport revocation. Submitting a payment to bring the liability under the $52,000 threshold after an individual has been certified will not reverse the notification of certification.

Does that mean traveling taxpayers should panic? Possibly. The State Department is responsible for the issuance of U.S. passports and has the sole authority to revoke or limit a passport held by a certified individual. Whether a passport will be revoked or limited is left solely to the discretion of the State Department (and not the IRS).

That said, the IRS will use an automated approach to aggregate unpaid liabilities, and if the total exceeds the threshold, the taxpayer will be certified as having a SDTD. IRM and IRM 5.19 1.5 19.8 state the IRS will forward a list of taxpayers with SDTDs on a weekly basis to the State Department and the taxpayers will be precluded from receiving a new or renewed passport.

If the taxpayer is located overseas upon revocation of the passport, §32101(e)(2)(B) of the FAST Act allows the Secretary of State to either limit a previously issued passport or issue a limited passport only for return travel to the U.S.

The IRS indicated that the State Department will hold the passport application for 90 days to allow the taxpayer to fully pay the SDTD, arrange for an installment or settlement with the IRS, or resolve any erroneous certification issues.

IRM and IRM 5.19 1.5 19 9.1 allow a taxpayer to request expedited decertification if they are eligible and (1) have foreign travel scheduled within 45 days or less, or live abroad, and (2) have a pending application for a passport or renewal and can provide their passport application number and the location of the passport application. The IRS may then complete and send Form 14794, Expedited Passport Decertification, directly to the State Department.

There is no administrative appeals process for certification of a taxpayer’s account. Taxpayers whose accounts are certified to the State Department as having a SDTD can file suit in the Tax Court or a District Court of the United States. If the court determines that the certification is erroneous or should have been reversed, it can order the certification reversed per IRM

Safe Solutions

There are several systemic issues associated with the passport revocation program. We have encountered two of these. In one case, the tax liability was paid in full and the taxpayer received a CP508C one month after the payment was made. In the second case, the taxpayer had an existing installment agreement and still received a CP508C. In both cases, the Taxpayer Advocate office was contacted, and they assisted in resolving the revocation issues.

We recommend that the Local Taxpayer Advocate be contacted for passport revocation issues that include hardship, are systemic and erroneous, need special and prompt attention, and for expedited issues.

We also suggest that practitioners engage with their clients to be proactive in attempting to resolve unpaid tax liability problems. Ask your clients how they would like to resolve outstanding tax issues — think installment agreements, an offer in compromise, paying the full liability, or establishing uncollectible status due to financial hardship. Remember that a pending installment agreement request will stop the CP508C letter from being issued.

Also, do not let CDP rights go unanswered. File a Form 12153, Request for a Collection Due Process or Equivalent Hearing, in response to Notices 3172 or 1058 and attempt to resolve the issue through CDP. Remember CP508C letters can be issued if the accumulated liability exceeds $52,000 and all administrative remedies such as Collection Due Process have been exhausted.

We can attest that the process of decertification does work. In a recent case, both a husband and wife received a CP508C. Their outstanding tax liability was placed in uncollectible status due to financial hardship through a Revenue Office and a CP508R was issued two months later.

In another case where a taxpayer owed over $300,000, the taxpayer was able to enter into an installment agreement with a payment of only $100 per month and within two months received a CP508R.

Always work with your clients and attempt to resolve cases as expeditiously as practicable. Request installment agreements as soon as possible. Ascertain that all previously unfiled tax returns have been filed, and if required, that an estimated tax payment is submitted for the current tax year. As appropriate, make sure to be ready with a completed Form 433-F, Collection Information Statement, or Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, to jump start the process.
Larry J. Wolfe, CPA of Larry J. Wolfe Ltd. in Skokie, Ill. has been an ICPAS member since 1979 and sits on the Taxation Individual Committee and Taxation Practice & Procedures Committee. Wolfe is also an AICPA member and part of the AICPA Tax Practice and Procedure Committee. Harold D. Katz, CPA, TEP of Katz LLC in Chicago has been an ICPAS member since 1979 and is also an AICPA member.

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