Owing Back Taxes to the IRS Could Result in Loss of Your Passport

Owing Back Taxes to the IRS Could Result in Loss of Your Passport

If you happen to owe back taxes to the IRS, you can expect to face severe interest and penalties. When all is said and done, it is likely that you can anticipate a tax bill that is several times larger than what you started with. Although this fact may be well-known, what you will probably find surprising is now the IRS has found a new way to make your life miserable: loss of your passport.

The tax process can be a complicated matter for average people and professional preparers alike.   As such, the IRS continually tries to expand on its regulations in order to get tax compliance running in an equitable and efficient fashion. Therefore every so often, new laws are created and piled on to the ever growing Internal Revenue Code which intends to clearly explain the procedure, administration, and implementation of taxes in the United States.

One recently passed new tax statute that ought to be noted is titled: Revocation or Denial of Passport in Case of Certain Tax Delinquencies. The provisions of this law fall under section 7345 and the consequences for individuals owing back taxes could now mean the loss of their passport. In a nutshell, the IRS has formed a partnership with the State Department in order to deny or hinder passport issuance if an individual is in serious delinquent tax debt.

The IRS’s New Power

Section 7345 proves to be an effective IRS arsenal for a number of reasons. First, the figure that the IRS has drawn the line on is $50,000 or more in back taxes owed; then the agency notifies the State Department. What is important to note is that this threshold actually includes interest and penalties in the final sum. As anyone who has had a taste of how the IRS works, these components can add up rather quickly and increase at a steady rate, which means the amount in actual taxes owed by the debtor could be far less to lose a passport.

Second, Code 7345 has created an avenue for the IRS to now share information with the U.S. State Department. Upon instruction, the State Department will unleash one of these actions against the tax debtor: revoke, deny, or hinder a passport.   The loss of a passport is of course a hassle for the average American, but it can prove to have some serious ramifications for those citizens living abroad. Consider each of the following circumstances and contemplate how mishaps could easily occur:

  • Expats living in countries where the tax year does not coincide with the United States.
  • Navigation through tax treaties when living abroad and proper classification of taxing incomes, investments, and pensions.
  • Foreign currency swings and the issues surrounding double taxation.
  • Problems with overseas mail service and the possibilities of not receiving IRS lien notices.

The unique positions of Americans living and earning an income in a foreign country can prove to be high stakes when the threat of losing a passport is always looming, particularly when tax rules between two countries are unclear to begin with.

Third, with Code 7345 in place, the IRS with the help of the State Department now has effectively extended its powers to restrict one’s right of freedom of movement and exit and entry out from and into the United States. Such circumstances could not only entail annoyances around travel arrangements, but also it could mean both personal and professional hardships especially in emergencies.

The Importance of Filing Correct Returns

Correct and timely filing of tax returns is once again emphasized with IRS statute 7345. Because the IRS wants to incentivize taxpayers to settle their bills, the agency has pushed this new law into existence. It is important to bear in mind that that does not mean that there are no grounds for challenging Section 7345.

Our attorneys at Dallo Law Group know the grounds for limiting and in some cases even erasing the threat of passport loss due to back taxes owed.   These significant exceptions could help you keep your passport even when you are still in the process of paying your debt. We have a proven track record which highlights numerous tax victories on behalf of our clients. Once you retain us, you can be assured that your best interests are looked after. Reach out to us for further details and before the threat of losing your passport becomes a reality.