Included as a revenue offset to the 2015 Fixing America’s Surface Transportation Act (FAST), newly added Section 7345 requires the Secretary of the Treasury to forward certification of SDTD to the Secretary of State. The Secretary of State then must deny applications by the taxpayer to obtain or renew a passport or may revoke use of an issued passport, allowing only return travel to the US. These requirements are subject to exclusions for emergency and humanitarian purposes.
Seriously Delinquent Tax Debt, as defined by Section 7345, is pretty serious debt. Generally, the debt must a) be assessed, b) exceed $50,000, including interest and penalties and indexed for inflation, and c) have a lien filed with no remaining administrative remedies available or have a levy issued. There are exceptions for debt subject to an installment agreement or offer in compromise that is being paid timely, timely filed innocent spouse relief, and for pending due process hearings.
Even though Section 7345 has been effective since President Obama signed FAST on December 12, 2015, enforcement has been delayed while the State and Treasury Departments work out the details. On its website, the IRS says that it will begin certifying SDTD in early 2017.
The IRS will notify the taxpayer by mail when it certifies SDTD to the State Department as well as when certification of SDTD is reversed. The State Department will hold passport applications and renewals for 90 days to allow the taxpayer to resolve his SDTD but is not required to wait before revoking a passport. The IRS certification may be appealed to the federal district court, but the taxpayer may not have his lien released or be awarded monetary damages through this process.
Once the IRS has properly certified a SDTD, the individual’s options for getting the passport ban lifted are limited to getting back into good standing, which means paying the debt, entering into an installment agreement, obtaining IRS approval for an offer in compromise or through certain administrative procedures and certain requests for innocent spouse relief. The Treasury Department will notify the State Department within 30 days that the taxpayer is in good standing and that the SDTD status is being reversed.
In order to reach SDTD status, a taxpayer must file a return showing a large balance due (or have the return adjusted under audit), then ignore multiple notices asking for payment of the amount due and then fail to make alternative payment arrangements. In the eyes of the IRS, this generally means that the taxpayer has intentionally disregarded their obligation to pay their taxes, and so the IRS will treat them accordingly. On its web page describing the Section 7345 process, the IRS included the following statement:
“If you need your U.S. passport to keep your job, once your seriously delinquent tax debt is certified,
you must fully pay the balance, or make an alternative payment arrangement to keep your passport.”