On January 16, 2018, the Internal Revenue Service issued a notice, furnishing taxpayers with information about the implementation of new section 7345 of the Internal Revenue Code (Code), enacted by Section 32101 of Fixing America’s Surface Transportation (FAST) Act, Pub. L.114–94, on December 4, 2015.
Section 32101(a) of the FAST Act added new Code section 7345. Under it the Department of the Treasury (Treasury) must notify the Department of State (State Department) if a certification is made that an individual has a “seriously delinquent tax debt.”
Such certification or a reversal of such certification may only be made by the Commissioner of Internal Revenue, the Deputy Commissioner for Services and Enforcement of the Internal Revenue Service (IRS), or the Commissioner of an operating division of the IRS (collectively, Commissioner or specified delegate).
Upon receipt of a section 7345 certification, section 32101(e) of the FAST Act provides that the State Department will generally deny an application for issuance or renewal of a passport from such individual, and may revoke or limit a passport previously issued to such individual. The IRS and State Department will begin implementation of these provisions in January of 2018.
Under section 7345(b)(1), a “seriously delinquent tax debt” is an unpaid, legally enforceable, and assessed federal tax liability of an individual, greater than $50,000, and for which:
- A notice of federal tax lien has been filed under section 6323, and the taxpayer’s right to a hearing under section 6320 has been exhausted or lapsed; or
- A levy has been issued under section 6331.
Pursuant to section 7345(f), the $50,000 amount is adjusted for inflation each calendar year beginning after 2016.
The $50,000 federal tax liability threshold is calculated by aggregating the total amount of all current tax liabilities for all taxable years and periods meeting the above criteria (including penalties and interest) assessed against an individual.
The Joint Committee on Taxation estimated that the bill’s revocation or denial of passports to some individuals with tax debts of over $50,000 should net the government $395 million through 2025.
One of the potential problems will be, in the case of taxpayer living or temporarily out of the U.S., the taxpayer may not receive notice of the seriously delinquent tax debt until late in the 30 or 90 day time limits. Since it may take time for the taxpayer to receive forwarded mail abroad and since resource-deprived agencies, such as the IRS and State Department, may not act, as required by statute, due to lack of capacity, a taxpayer may have difficulties meeting the time limits.
Since the $50,000 threshold triggering the denial, cancellation, or limitation on passports includes the total amount of all current tax liabilities for all taxable years and periods meeting the above criteria (including penalties and interest) assessed against an individual, this amount can be reached easily without knowledge of a taxpayer.
The new law illustrates how the U.S. government is increasingly connect tax debts with travel. Another recent change is that the names of taxpayers owing more than $100,000 to the IRS are put into the Treasury Enforcement Computer Service (TECS). When the taxpayer enters the country, his name is flagged by TECS. An Immigration Customs Enforcement official must then take the taxpayer to secondary inspection and ask a series of questions about his assets, so that the IRS can be able to more easily collect the tax debt.
In 2006, the so called “Reed Amendment” provision was part of immigration reform. The Reed Amendment provision bars re-entry to the U.S. of former citizens who expatriated for a principal tax avoidance purpose in the opinion of the Attorney General. The responsibility to administer and enforce the provisions was formerly within the Immigration and Nationality Service, which was within the Department of Justice at the time. In 1996, Janet Reno was the Attorney General of the United States and did not want to implement the law. Now the INS has been transferred to U.S. Customs and Immigration Service within the Department of Homeland Security.
In an appropriate case, the Revenue Officer can request a Prevent Departure Order. An ICE Departure Control Order or a Prevent Departure Order is an administrative action similar to the Writ Ne Exeat Republica.
A Prevent Departure Order can prevent a non-U.S. citizen from exiting the U.S., pending the resolution of a collection matter.
The authority for the Prevent Departure Order is contained in 22 C.F.R. § 46.2(a), which states in part: “…No alien shall depart, or attempt to depart from the United States if his departure would be prejudicial to the interest of the United States under the provisions of 46.3.”
In I.R.M., the IRS concludes that 22 C.F.R. § 26.3(h) applies to a collection investigation because it allows ICE to prevent the departure of:
Any alien who is needed in the United States in connection with any investigation or proceeding being, or soon to be, conducted by any official executive, legislative, or judicial agency in the United States or by any governmental committee, board, bureau, commission, or body in the United States, whether national, state, or local.
The writ ne exeat republica is designed to enable the IRS to collect against a non-U.S. citizen who is about to depart from the U.S. or who no longer resides in the U.S., but is temporarily present in the U.S. and who has transferred his assets outside of the country to avoid payment of his federal tax liability.
The writ ne exeat is a court order, by which a U.S. Marshall is required to arrest and jail a defendant who fails to post bail or other security in a specified amount – I.R.C. § 7402(a) and 28 U.S.C. § 1651.
Litigation is likely against the provisions in FAST to deny, cancel, or limit passports. Whatever the outcome, linking travel, migration and tax enforcement seems to be gaining momentum.