To accompany his recent paper “Urgent Need for U.S. Citizens Residing Outside the U.S. to be Able to Obtain a Taxpayer Identification Number (‘TIN’) Other Than a Social Security Number” Patrick Martin has made several blog posts about the difficulties faced by U.S. citizen teenagers and adults attempting to obtain Social Security numbers from outside of the United States. I highly recommend the paper & posts to all readers here.
Mr. Martin also states that it is impossible for U.S. citizens to travel to the U.S. without an SSN. On its face, this looks like a reasonable conclusion from the warnings on the U.S. passport application form. State Department officials themselves do not seem to agree; in 2011, they told the Government Accountability Office that they did not believe then-current statutes allowed them to deny passports to SSN-less applicants. Nevertheless, the statutorily-authorised fine imposed in some cases for failure to provide a TIN — enacted to punish the diaspora — may deter U.S. passport applicants who lack SSNs, and a large proportion of such applicants are likely to be U.S. citizens in other countries.
A new bill may make the situation even worse, though it wouldn’t prevent travel to the U.S., “just” departure afterwards. Under Orrin Hatch’s “customs bill” (S. 1269/H.R. 644) which recently passed the Senate, not just people with significant unpaid taxes or tax-form-related fines, but also people who do not provide their SSNs, would be unable to obtain general-validity U.S. passports, only “one-way passports” limited for travel to the United States. This proposal, and others like it, directly resulted from State’s 2011 comments to the GAO. The SSN-related part of the proposal is new, and did not appear in the previous iterations of the proposal in the 2012 highway bill nor veterans’ jobs bills. It is not clear whether it would deny U.S. passports to people who never had SSNs in the first place. I will explore this in a separate post later on.
- Current law: obtaining U.S. passport without SSN
- The Privacy Act of 1974
- The origin of 26 USC § 6039E
- Other uses of SSNs under Reagan’s tax reforms
Form DS-11, “Application for a U.S. Passport”, contains a dire all-caps warning which many people will interpret as meaning that non-possession of a Social Security number leads to automatic passport denial.
FAILURE TO PROVIDE INFORMATION REQUESTED ON THIS FORM, INCLUDING YOUR SOCIAL SECURITY NUMBER, MAY RESULT IN SIGNIFICANT PROCESSING DELAYS AND/OR THE DENIAL OF YOUR APPLICATION
A closer look at the instructions reveals a rather more nuanced picture:
Section 6039E of the Internal Revenue Code (26 U.S.C. 6039E) requires you to provide your Social Security number (SSN), if you have one, when you apply for or renew a U.S. passport. If you have not been issued a SSN, enter zeros in box #5 of this form. If you are residing abroad, you must also provide the name of the foreign country in which you are re siding. The U.S. Department of State must provide your SSN and foreign residence information to the U.S. Department of Treasury. If you fail to provide the information, you are subject to a $500 penalty enforced by the IRS. All questions on this matter should be directed to the nearest IRS office.
Although a Social Security number is not required for issuance of a passport, Section 6039E of the Internal Revenue Code of 1986 requires passport applicants to provide this information.
The punishment for failure to provide the required information is a fine, not denial of a passport. In Paperwork Reduction Act filings (see also recent comment request, 80 FR 25360), the IRS estimate that Form 13997 — the form they send & ask you to fill out if your passport application doesn’t include your SSN, or doesn’t clearly indicate that you don’t have one — is filed by 2000 people per year. One Brocker has previously reported her success in obtaining a new U.S. passport while her SSN application was still pending (i.e. she didn’t have an SSN yet), without ever hearing anything about Form 13997.
A March 2011 Government Accountability Office report, “Potential for Using Passport Issuance to Increase Collection of Unpaid Taxes” (probably the ultimate origin of Harry Reid’s first 2012 proposal for tax-related passport denial & revocation) noted that the State Department itself believes that an earlier statute (enacted before 26 USC § 6039E) still bars them from demanding SSNs from passport applicants or denying passports to applicants who do not provide them:
In addition, although federal law requires passport applicants applying for or renewing a passport to provide their SSN if the applicant has a SSN, having a SSN is not a prerequisite to obtaining a passport. According to State officials, section 7(a)(1) of the Privacy Act prevents State from refusing to issue a passport to an applicant even though the application does not have a SSN. State officials stated that State needs legislation to compel passport applicants to provide a SSN and to withhold passport issuance or deny the application for failure to do so. Therefore, we found that State records did not always contain this key field or contained obviously false numbers, as State instructs applicants who do not have a SSN to enter all zeros into the SSN field of the passport application. The lack of SSNs prevented us from determining whether those passport applicants had unpaid federal taxes and, if so, the amount of unpaid taxes owed by them.
Section 7 of the Privacy Act of 1974 (88 Stat. 1896, 1909) states, specifically:
(a)(1) It shall be unlawful for any Federal, State or local government agency to deny to any individual any right, benefit, or privilege provided by law because of such individual’s refusal to disclose his social security account number.
(2) the provisions of paragraph (1) of this subsection shall not apply with respect to—
(A) any disclosure which is required by Federal statute, or
(B) the disclosure of a social security number to any Federal, State, or local agency maintaining a system of records in existence and operating before January 1, 1975, if such disclosure was required under statute or regulation adopted prior to such date to verify the identity of an individual.
(b) Any Federal, State, or local government agency which requests an individual to disclose his social security account number shall inform that individual whether that disclosure is mandatory or voluntary, by what statutory or other authority such number is solicited, and what uses will be made of it.
State Department officials do not believe that 26 USC § 6039E brings them within the “required by Federal statute” exception of § 7(a)(2)(A). This may be because 26 USC § 6039E(b)(1) mandates only that passport applicants provide TINs if they have them, and 26 CFR 301.6039E-1 instructs applicants who do not to enter all zeroes.
Note also that while the regulations mandate that the TIN be an SSN, the statute itself does not. As Patrick Martin has pointed out, his proposal to allow members of the diaspora to use an ITIN instead of an SSN as their TIN would not require any Congressional action to amend statutes, just changes to Treasury regulations. However, in the (mercifully unlikely) event that the Hatch passport-confiscation bill passes the House and gets signed into law by President Obama, Mr. Martin’s proposal could no longer be implemented by executive action, since Hatch’s proposed 26 USC § 7345(e) specifically demands an SSN, not a TIN.
The current statute and its regulations allow the IRS to fine an applicant US$500 for failing to provide an SSN without reasonable cause (and the threatened fine itself may deter applicants if they’re unaware of the exception for the SSN-less and don’t spend their free time reading GAO reports), but it seems they do not let the IRS demand that State deny the SSN-less applicant a passport, nor allow State to do this on its lonesome.
The requirement for passport applicants to provide SSNs, if they had them, was created by a part of what most people call “the Reagan tax cuts”: Section 1234 of the Tax Reform Act of 1986 (100 Stat. 2085, 2565). Specifically, it was contained in Title XII of the Act, “Foreign Tax Provisions”, which should give you a gentle tap with a clue-by-four about whom 6039E was targeting. (When Homeland Democrats want to pick the pockets of the diaspora, they claim they’re “making the rich pay their fair share”, but when Homeland Republicans want to do the same, they call it “tax increase prevention” or even “tax reform”. Just something to keep in mind for those who have placed their hope in this year’s process of “tax reform”, at the helm of which we find two well-known anti-diaspora Republicans: Orrin Hatch and Chuck Grassley.)
A 1998 GAO report, “Nonfiling Among U.S. Citizens Abroad”, confirms this intuition about why Congress enacted 6039E: it was a continuation of the War on the Diaspora, which had shifted already from the conscription & involuntary expatriation issues of the 1950s & ’60s to the fiscal front of the late 1970s through the present.
We have responded to two earlier congressional inquiries into nonfiling by U.S. citizens residing abroad. In a 1985 testimony, we noted that our analysis of filing among a limited sample of U.S. citizens in selected countries indicated a potential nonfiling problem. As a result, Congress enacted IRC section 6039E: Information Concerning Resident Status in the Tax Reform Act of 1986. This section includes provisions requiring U.S. citizens applying for passports to provide their Social Security number (SSN), any foreign country of residence, and other information that might be prescribed by the Treasury Department. The intent of section 6039E was that IRS would use this information to identify nonfilers residing abroad.
In May 1993, we reported on IRS’ relevant compliance initiatives, the lack of reliable data on U.S. citizens abroad, and IRS’ limited use of passport application data as a compliance tool.
The initial proposed regulations under § 6039E back in 1992 even claimed the desire to improve compliance among “nationals living abroad”. 57 FR 61373, 61374:
Purpose and scope
Section 6039E is intended to improve tax compliance by resident aliens and U.S. citizens or nationals living abroad.
With respect to U.S. citizens or nationals living overseas but not filing returns, the Congress foresaw that collection of tax after identification might be difficult but nonetheless sought both to give the Internal Revenue Service a further source of information regarding these nonfilers and to notify these overseas persons of their continuing duty to file U.S. tax returns. With respect to persons applying for permanent residence, Congress was concerned that new residents might derive income from foreign sources not subject to normal information reporting or withholding. Therefore, Congress concluded that the Internal Revenue Service needed an additional tax compliance measure for these persons. The new reporting provisions give the Internal Revenue Service information about these persons that would otherwise be unavailable.
To be perfectly clear, both in 1992 and today, non-citizen nationals (now basically only American Samoans; I think but am not certain Palauans were also non-citizen nationals back in 1992, before their independence) fall under the definition of “non-resident alien” in the Deficit Reduction Act of 1984 (98 Stat. 494, 672, enacting § 7701(b)(1)(B)). Even prior to that, the old 26 CFR 1.932-1 (25 FR 11951) defined non-resident alien to include “a citizen of a possession of the United States (except Puerto Rico)” who wasn’t a U.S. citizen & didn’t live in the States or Mordor, under authority of the old Section 932 of the Inter
plan eta rial Revenue Code of 1954 (68A Stat. 292; not to be confused with the new Section 932 regarding the U.S. Virgin Islands). Non-citizen nationals also were not defined as “United States persons” in the Revenue Act of 1962 (76 Stat. 960, 988, enacting § 7701(a)(30), though back then that definition only really applied to the treatment of foreign trusts.
These proposed regulations also created the “all zeroes” procedure for applicants without SSNs. (Note that we are now well past the expiration date of all U.S. passports issued before these regulations.) In January 2012 (77 FR 3964), the IRS withdrew the above notice, including the preamble which stated the “purpose and scope” of the regulations, and proposed new regulations instead. Those regulations also included the “all zeroes” procedure, and became final in July 2014 (79 FR 41889).
26 USC § 6039E was not the only law created by the Tax Reform Act of 1986 which started demanding SSNs. The most famous new requirement was the one in Section 103(b) of the Act (codified at 26 USC § 151(e)): that parents provide the SSN of each dependent for whom they claimed an exemption on their Form 1040. This resulted in one of the worst demographic disasters ever recorded in history: seven million Homeland children disappeared, and with them exemptions worth US$2.8 billion in taxes for that year alone.
Adjusting for inflation, this is more than seven times the amount of annual tax revenue increase that FATCA claims it will accomplish, and fourteen times what the Congressional Budget Office imagines Hatch’s passport-revocation proposal will bring in. (For the revenue estimates of the Hatch bill, see S. Rept. 114-45; if the congress.gov link still isn’t working, you can find it at p. 65 of the Senate Finance Committee PDF).
Obviously, these missing children were not kidnapped or massacred en masse. Consider what that means: Homelanders invented a population at least twice the size of the entire American diaspora at the time. They did not merely fail to file some forms; they lied outright, on a massive scale. But as collective “punishment” for their absurdly wide-spread tax fraud, with real revenue consequences rather than mere Form Crime, Homelanders at large were subject to nothing more than one extra box on their 1040, and having to help their kids obtain an SSN (which they would have done later in life anyway once they started working).
Similarly, what’s the IRS’ response to what’s probably the most-widespread tax scam in the Homeland now — false mileage deductions? Targeted audits, not demanding gas stations and toll booths to submit the licence plate number of every one of their customers to an IRS database.
In response to a far smaller number of Homelanders using minority interests in foreign holding companies to avoid U.S. taxes, the same Tax Reform Act of 1986 gave us PFIC, under which the IRS later declared every non-U.S. mutual fund and ETF in the world to be not a convenient, low-overhead instrument for small, unsophisticated investors as their local governments intended, but offshore tax shelters demanding intense scrutiny. When Homelanders tried to use Belize and Cook Islands trusts to shelter income or hide ownership, Congress defined every foreign retirement plan in the world to be a foreign trust. And when those Homelanders used accounts at a limited range of offshore banks to cheat on their taxes, Congress buried the entire diaspora and every bank in the world under 577 pages of FATCA regulations, in the service of collecting a mere one-seventh of the revenue of which Homelanders’ child scam had deprived the Treasury.