In 2015, President Obama signed the Fixing America’s Surface Transportation (FAST) Act in order to provide long-term funding certainty for federal, state, and local surface transportation. Included in this act was a provision that comes with significant impact for U.S. citizens and permanent residents living abroad called Code Section 7345 which authorizes the IRS to control issuance and termination of passports. The IRS began implementing Code Section 7345 earlier this year; therefore, taxpayers who live or often travel abroad should become familiar with this new provision.
Under code section 7345, if a taxpayer has a Seriously Delinquent Tax Debt (SDTD), the IRS can notify the State Department to deny, revoke, or limit the taxpayer’s passport. The State Department, though, retains the right to make exceptions and issue passports to individuals with SDTDs for emergency or humanitarian reasons. A SDTD is an assessed federal tax liability of more than $50,000, which remains unpaid, and with respect to which either the IRS has filed a Notice of Federal Tax Lien (NFTL) and the administrative rights have been exhausted or lapsed, or the IRS has levied.
There are certain situations in which an outstanding tax debt is not considered a SDTD.
- The taxpayer enters into an installment agreement with the IRS and is making timely payments.
- The IRS accepts an Offer-in-Compromise and timely payments are being made by the taxpayer.
- The Justice Department enters into a settlement agreement to satisfy the debt.
- Collection is suspended because the taxpayer requests innocent spouse relief.
- The taxpayer makes a timely request for a collection due process hearing in connection with a levy to collect the debt.
When the tax debt is fully satisfied or becomes legally unenforceable, the IRS will reverse its certification with the State Department. The IRS will also reverse its certification if a tax debt is no longer considered seriously delinquent or the certification is erroneous.
In addition to paying the SDTD, taxpayers living abroad should be current with their U.S. tax filings including the reporting of foreign bank accounts. There are various programs and relief available such as Streamlined Procedure and Offshore Voluntary Disclosure Program (OVDP) for taxpayers that are or may be out of compliance with their U.S. tax filings.
HLB Gross Collins, P.C. can assist with outstanding and future tax matters for U.S. citizens and permanent residents living abroad. Our International Practice is committed to offering exceptional service and knowledge in all tax, accounting, and financial needs whether locally or across the globe.