cross posted from Citizenship Solutions
US Passport application links Citizenship (State Dept) to Taxation (Treasury) to enforce "Taxation based Citizenship" https://t.co/UIINgzbpF2 via @ExpatriationLaw
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) October 2, 2018
The logical progression continues …
I just got off the phone with someone who has just received a letter from the IRS stating that:
1. He had a “seriously delinquent” tax debt; and
2. That notice of the “seriously delinquent” tax debt was being forwarded to the State Department.
(In 2016 I did a presentation on this topic just a few months after the law came into force. You may view the presentation here.)
It is clear that the letters from the IRS have started to go out. The purpose of this post is to explain in simple terms what this means for Americans abroad.
To put it simply:
1. If you have received the notice and you do NOT have a current U.S. passport then:
The State Department cannot issue you a passport.
2. If you have received the notice and you DO have a current U.S. passport then:
The State Department may revoke your passport but is not required to revoke your passport.
For most Americans abroad (who certainly have a valid U.S. passport unless they are dual citizens) receipt of the letter does NOT mean that they will lose their existing U.S. passport.
Like all aspects of living as a U.S. citizen abroad, this issue will be governed by both the IRS and by the State Department.
It began with Sec. 3201 of the FAST Act (which naturally is a revenue offset provision and one of the final gifts from the Obama administration) …
Like most of life as a U.S. citizen, it all starts with the IRS …
Internal Revenue Code Sec. 7345 provides the mechanism to certify the “seriously delinquent tax debt” and then forward notice of the debt to the State Department. The relevant language is:
If the Secretary receives certification by the Commissioner of Internal Revenue that an individual has a seriously delinquent tax debt, the Secretary shall transmit such certification to the Secretary of State for action with respect to denial, revocation, or limitation of a passport pursuant to section 32101 of the FAST Act.
You can read how the IRS interprets this provision here:
Once the State Department receives the “certification” it will respond with “denial, revocation, or limitation” …
According to the State Department:
Passports and Seriously Delinquent Tax Debt If you have been certified to the Department of State by the Secretary of the Treasury as having a seriously delinquent tax debt, you cannot be issued a U.S. passport and your current U.S. passport may be revoked.
If you are overseas you may be eligible for a limited passport good for direct return to the United States.
We would suggest that if you have seriously delinquent tax debt, you contact the IRS to resolve your debt before applying for a passport. If you do not resolve your tax issues before applying for a passport, your application will be delayed or denied.
If you have seriously delinquent tax debt and have already applied for a new U.S. passport, we cannot issue a new passport to you until you have resolved your tax issues with the Internal Revenue Service (IRS).
For more information on seriously delinquent tax debt, see Revocation or Denial of Passport in Case of Certain Unpaid Taxes on the Internal Revenue Service (IRS) website.
So, where in the legislation and regulations does all this come from?
Denial: Denial is mandatory when one applies for renewal or for a new passport.
§ 51.60 Denial and restriction of passports.
(a) The Department may not issue a passport, except a passport for direct return to the United States, in any case in which the Department determines or is informed by competent authority that:
(3) The applicant is certified by the Secretary of the Treasury as having a seriously delinquent tax debt as described in 26 U.S.C. 7345.
Revocation: Revocation is permitted but is not mandatory
§ 51.62 Revocation or limitation of passports.
(a) The Department may revoke or limit a passport when
(1) The bearer of the passport may be denied a passport under 22 CFR 51.60 or 51.61; or 51.28; or any other provision contained in this part; or,
It is not clear when the State Department would revoke an existing passport. I am not sure what incentive the State Department has to revoke an existing passport (just because of a tax debt).
My thoughts on this …
1. The $50,000 “tax debt” includes interest and penalties. It’s easy for an American abroad to exceed this simply through “form transgressions”.
2. The people most threatened by this are those who do not have a second passport. Get yourself a second passport.
The days of living as a U.S. citizen outside the United States are clearly numbered.
Interested in learning about Substitute Tax Returns for non-filers? If this is not enough excitement, see …
Considering renouncing US citizenship? "Passport Revocation Update: Over 436,000 Taxpayers Meet "Certification" Criteria" https://t.co/LDoHw0iAAV via @VLJeker
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) October 2, 2018
Or Johnson’s accountant may have been preparing US tax returns for him all along. He’d have no reason to complain while there was no tax due.
It was quite predictable that the Moody’s tax lawyer cited Boris at the start of the presentation. But very easy for cranky audience members to point out that Boris paid by choice, though he had his reasons.
Also Meghan Markle’s (expected) baby, whose citizenship is a matter of speculation, should draw some attention to the issue.
Since the baby won’t be a royal, I think the baby will have British citizenship, besides inheriting the mother’s infection.
If the baby won’t be a Canadian royal either, does it get Canadian citizenship?
Hah, horses for courses. Markel herself should have given FATCA some public attention and scrutiny, although I’m grateful she didn’t. It’s bad enough that most Americans think we “deserve it” but would be even worse if they associate FATCA er…sufferers with being married to British royalty.
I would however take great joy in seeing the IRS insisting Markle share Harry’s bank account information like they have with the rest of us expats married to foreigners. IT WON’T HAPPEN because some Americans get instant FATCA immunity.
“Hah, horses for courses”
Precisely. I often wonder why Boris after his initial outburst , then refused to comment on his American Tax resolution after his problems with the IRS. Could it be that he was given a sweetheart deal for his future silence? The press reported he had paid but I believe Boris refused to comment.
Then of course there were all those undeclared accounts (90%} at UBS that Hillary somehow managed to have overlooked.
Yes, there may be public discussion on Markle and her baby but I bet there will be ‘no comment’ from the establishment.
Maybe they will revoke his passport. He and pumpkinhead come from the same mold.
“Maybe they will revoke his passport. He and pumpkinhead come from the same mold.”
They’re not fleeing though.
Markel’s baby is safe IF she does not apply for US citizenship for it. Only where the parents are both American is it automatic. If only one parent is American, the baby may be registered with the US Embassy and given US citizenship but it is not required. My child is, thankfully, US-taint free.
It’s also automatic if only one parent is a US citizen, if the US citizen parent was present in the US for at least 5 years, 2 of which were after age 14 (which I think is the case with Meghan from what I’ve read about her).
But most kids born outside the US don’t have a famous parent, so even if they got US citizenship automatically at birth, they’re often in good shape to stay under the radar.
USCIS Policy Manual Nationality Chart 1
When both parents have US citizenship, infection is automatic if at least one parent ever resided (even if just for one minute) in the US before the birth. The infection becomes visible if someone makes a consular report but otherwise the person might be able to stay off the radar.
When only one parent has US citizenship at the time of birth, the question of infection or not has an automatic answer. The rules for determining the answer change all the time but rules exist even if judges and consuls and everyone else can’t figure out what the rules are. The infection or lack of infection becomes visible if someone makes a consular report or if someone sues over it, but otherwise the person might be able to stay off the radar.
Hey wait. If someone’s off the radar they don’t have a US passport and don’t have to worry about revocation.
“Hey wait. If someone’s off the radar they don’t have a US passport and don’t have to worry about revocation.”
True, passport revocation is not an issue but reporting may be. In Japan, it is an issue. Elsewhere it may not be…..yet.
There are definitions and degrees of “radar” and what being on and off it might mean. It’s possible to hold a valid US passport without making any attempt at tax compliance, and never hear a word from the IRS, even with FATCA. That may one day change.
“That may one day change.”
You can count on it. And should.
Indeed. An issue for anyone who wants or needs that US passport; less so for those who do not.
Surely any dual who WANTS to be off the radar doesn’t have a US passport.
I’m happily off the IRS radar and I renewed a US passport 5 years ago just to have one handy in case I was hassled when entering on my Canadian. No concerns.
We have a lot of evidence that the IRS closes their eyes even if the radar shows a US non-resident citizen as long as the person doesn’t try to comply. This provides no information about whether the radar shows you.
As I said earlier, you can define radar many different ways. If no action is taken, it’s actually hard to know whether one is or isn’t on any radar.