Don't Bet the Business

When the Internal Revenue Service (IRS) seeks compliance from a taxpayer with an outstanding tax balance, it has many enforced collection tools at its disposal, including the suspension of a person’s passport.

This is done through the IRS Passport Denial and Revocation program and is in addition to the agency’s power to place liens on property or to levy bank accounts and paychecks to force taxpayers to resolve their tax issues.

Since its inception, the IRS has used this program to great success, collecting billions of dollars in taxes from individuals who have resisted other collection efforts. Due to its success, the IRS has been using the program with increasing frequency.  

The IRS reported the following results through July, 2022:

• The number of taxpayers who have been “certified,” or reported by the IRS as seriously delinquent, to the U.S. Department of State: 834,807
• The number of taxpayers that were certified and then had their passport rights restored because they either paid or met one of the criteria for reversal: 389,562 or 47%
• $7.79 billion in delinquent taxes have been collected from taxpayers who were certified as part of this program.

It is estimated that 30 million taxpayers are approaching certification or have already been reported to the U.S. State Department

What Triggers Consideration for the Passport Denial or Revocation Program?

If a taxpayer is seriously delinquent and owes over a certain amount, they can be considered under this program for denial or revocation of their passport.

A seriously delinquent tax debt is defined as an unpaid, legally enforceable federal tax debt totaling more than $62,000 (including interest and penalties) that remains unpaid after the IRS has exhausted all collection efforts.  This $62,000 threshold includes federal individual income taxes, trust fund recovery penalties for unpaid payroll taxes, business taxes for which taxpayers are personally liable and other civil penalties.

Notification Process

Before the IRS can suspend or deny a taxpayer’s passport it must exhaust all legal remedies to collect the unpaid tax debt.  The available remedies include issuing notices, attempting to contact the taxpayer, filing a Notice of Federal Tax Lien and attempting to levy the taxpayer’s assets. If these remedies are unsuccessful, the IRS can then certify the debt as seriously delinquent to the State Department to begin the process of revoking or denying the taxpayer’s passport.

If you are certified as having a seriously delinquent tax debt, the IRS will send you a CP508C notice stating that you have been reported to the State Department. Once this certification is received and processed by the State Department, it may deny any new applications for a passport or revoke a previously issued passport if the liability is not resolved within 90-days.

After the 90-day notice period expires, the State Department may suspend or revoke an existing passport and potentially block any application for a new passport.

Options to Keep or Reinstate Your Passport

If a passport is suspended or lost, there are options to get it back:

1. Pay the Debt in Full: The most straightforward way to recover a lost or suspended passport is to pay the tax debt in full. Once the payment is processed, the IRS will reverse the certification by notifying the State Department within 30 days. Once the State Department processes the reversal issued by the IRS, it will automatically release any passport holds.
2. Establish a Payment Plan: If paying off the debt is not possible, the taxpayer can set up an installment agreement with the IRS. If accepted, the IRS will reverse the certification once the installment agreement is active and the first payment has been made.  Click here for more information about Installment Agreements.
3. Offer in Compromise: Outside of a repayment plan, the taxpayer may be able to negotiate an “Offer in Compromise” to resolve the tax debt for less than the full amount owed.  Once accepted, this will also lead to the reversal of the certification. Click here for more information about Offers in Compromise.
4. Prove the Debt is Not Legally Enforceable: As with any tax debt, if the taxpayer can show that the debt is not legally enforceable because it is inaccurate or does not belong to the taxpayer, the IRS will be required to reverse certification.

In many cases, a taxpayer may learn of a passport suspension only when attempting to travel internationally. For affected taxpayers the IRS has an expedited reversal process.  If the taxpayer has a passport, or an open passport application or renewal request, the IRS can shorten the decertification process to as little as 14-21 days.  When requesting an expedited decertification, the taxpayer must provide the IRS with proof of travel and a copy of the denial from the State Department.

Special Circumstances

There are certain situations when the IRS will not certify a taxpayer’s debt to the State Department, including:

• Taxpayers in bankruptcy
• Victims of tax-related identity theft
• Taxpayers in a federally declared disaster area
• Taxpayers with a pending installment agreement or Offer in Compromise
• Taxpayers serving in a designated combat zone

The justification for these exceptions to certification is that the program is intended to force a taxpayer to contact the IRS to start the process to deal with their federal tax issues. In each of these circumstances, the taxpayer is unable to address their tax debt due to some extenuating circumstance or because some other process is underway that prevents them from resolving their tax issues. As such, the taxpayer is not avoiding their responsibility.

The IRS will often decline to certify the tax debt until these special circumstances are resolved.  If you believe that any of these special circumstances apply to you and you were impacted by a denial or suspension of your passport, it may be possible to ask the IRS to reinstate it. This can be accomplished with the assistance of a tax practitioner.

Reversal of Certification

Once a taxpayer has resolved the tax issues that caused the denial or suspension of their passport, the IRS will send a CP508R notice, indicating that it will notify the State Department that the denial or suspension should be reversed.  The State Department will then remove any passport restrictions.

The IRS Passport Denial and Revocation Program is a powerful enforced collection tool the IRS uses to ensure tax compliance by impeding one’s ability to travel internationally.  If you receive a CP508C notice, it is crucial to act promptly.

For more detailed guidance, consult the IRS website or contact a tax attorney to help.