cross posted from Citizenship Solutions
Circa 2015:
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:
https://www.irs.gov/businesses/small-businesses-self-employed/revocation-or-denial-of-passport-in-case-of-certain-unpaid-taxes
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.
https://www.law.cornell.edu/cfr/text/22/51.60
§ 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
https://www.law.cornell.edu/cfr/text/22/51.62
§ 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
It would be extremely interesting if the IRS did seek certification of a non-filing non-resident on the basis of a false assessment. And even more interesting if they followed that folly up by actually revoking the passport to try to “persuade” the passport-holder to pay up (cracking their knuckles I suppose, in Ms Jekers fantasy).
A real good court case – one that might raise questions about due process and US tax policy and IRS collection methods and a whole bunch of stuff.
But in fact the US never does any of this dodgy stuff the tax advisers keep warning their customers about. Instead they do things like using compliant foreign-based USCs as the key to turning non-US-money into US money.
But
To boil it down to a few words, the model is blackmail rather than seizure. The IRS gets its money if the victim cooperates.
I don’t think that is the model.
The model is to sock it to the ones who sign the jurat.
Perhaps extortion is a better word. The model is “We can’t take your money directly, but we have other ways to hurt you if you don’t pay us.”
I’m not sure I follow. Can you elaborate?
Simple. The IRS (with heavy New Jersey accent) says: “Hey, US citizen, you owe us money. Unfortunately we have no way of collecting that money, but if you don’t pay us, we’ll break your fingers and take away your passport.”
So far, recipients seem to have paid up without even contesting the certification. Extortion doesn’t seem to be the right word. Final demand might be more like it.
The moral seems to be, don’t go there. Do not stack up $50,000 in US tax debt. Don’t file US tax returns, or if you do, pay the tax. Generic you.
Well yes, obviously, don’t put yourself in that position. Whether victims fight back or not, it’s still the same crude metaphor: “If we can’t collect the money you owe us, we’ll threaten you with something terrible so that you pay us anyway.”
It’s the consequences of defaulting on a debt.
‘It would be extremely interesting if the IRS did seek certification of a non-filing non-resident on the basis of a false assessment. And even more interesting if they followed that folly up by actually revoking the passport to try to “persuade” the passport-holder to pay up (cracking their knuckles I suppose, in Ms Jekers fantasy).
A real good court case – one that might raise questions about due process and US tax policy and IRS collection methods and a whole bunch of stuff.’
To get a good court case about denial of due process an unconstitutional collection methods, you’d have to get a good judge. Good luck.
=====
“The moral seems to be, don’t go there. Do not stack up $50,000 in US tax debt. Don’t file US tax returns, or if you do, pay the tax.”
No, the moral is don’t file US tax returns, period. If you file honest returns and you really don’t owe any tax, $50,000 in trumped up penalties (formerly obamaed up penalties, formerly bushed up penalties) stack up very quickly. Non-generic you because it was really almost me. I had around $35,000 which the IRS conceded the day after calendar call in Tax Court. I had to go to the US to fight it in Tax Court though, and my wife had to go too and she had to buy a US visa to go to Tax Court. (This is separate from the original $1,000 in penalties for illegal honesty on two returns, which remained in effect from an earlier case and which I paid.)
Sorry, in the case where the IRS conceded 100% of $35,000 in trumped up penalties, that wasn’t the day after calendar call in Tax Court. It was the afternoon of the same day after calendar call in the morning.
@nononymous
“Based on no evidence other than past IRS behaviour I expect that there will be zero immediate (circa 10 years) threat of ordinary non-compliant US citizens having any difficulty with passport renewal.”
There you go again. This law is new, Jan. 2017 new. So of course there is no evidence of it being enforced yet. But, despite it being so new, letters have gone out. Letters have been received. As in the OP, the law mandates refusal of passports and renewal of same to those who have signifiacant debt to the treasurary. As State has already been collecting SSNs and other info to share with Treasury and law enforcement, as FIs have been sharing information with the US for four years now, I’d say that there is plenty of evidence that starting very soon many will start being “caught” when attempting to renew a passport. But, you, Plaxy and others do not want to see it.
I suppose it is just a matter of time until student loan defaults are included in the USD 50,000 total. And alimony / child support, of course.
@Plaxy
“Yes, that’s what I said, that’s what I meant to say, and it’s correct.
“which means that an individual lacking PR staus has greater potential for hardship than an individual who has PR status.”
That’s what you said.”
No, that is what your statement says. You compare/contrast two sets of people, those with PR status and those without PR status. You compare these two sets on the basis of level of difficulty due to their status. You state “creating potential hardship for an individual without residence-country PR/citizenship status,”. Which also means that it is not creating potential hardship for those with PR status because you offer those with PR status as a comparison/contrast with those without PR status.
Having a PR visa does not offer any protection against deportation upon revocationof a passport for PR visa holding USCs in Japan, Australia and at least some EU nations. I suspect that holding a PR visia would offer little or no protection for most USCs living abroad.
“This is all a pretty pointless diversion from the point I was making, which is that the passport revocation law doesn’t help the IRS collect money if the passport holder has no US assets. Leading me to conclude that that’s probably not who they’re sending letters to. IMO.”
The IRS is blackmailing anyone who lives abroad. Pay up or lose passport and thus lose your family, home, employment and all else. Matters not where the assets are or even if the payment demanded is based upon anything at all. It is blackmail.
I remember many here at IBS telling me that I have nothing to worry about it in regards to having my accounts reported, given the low balances of those accounts. Why, because the IRS is not interested in small fry, only whales. My accounts are too small. Stop the fearmongering. Similar to your reasoning. Yet, my banks ARE reporting my account balances, transactions, name, address etc and HAVE BEEN for FOUR YEARS now.
FBAR not being included is indeed GREAT news. However, how does that affect penalties for not filing an income tax return?
@Plaxy
When has cost effectiveness ever been a part of this?
And, what is the cost of revoking or denying a passport or its renewal?
@Plaxy
“It would be extremely interesting if the IRS did seek certification of a non-filing non-resident on the basis of a false assessment. And even more interesting if they followed that folly up by actually revoking the passport to try to “persuade” the passport-holder to pay up (cracking their knuckles I suppose, in Ms Jekers fantasy).
A real good court case – one that might raise questions about due process and US tax policy and IRS collection methods and a whole bunch of stuff.”
Huh! What court case? Using myself as an example, let’s my passport renewal application is turned down. I would then be homeless, jobless and penniless, no to metion alone, in the US. With what would fund a court case against anyone?
I don’t “want” to believe anything. On this issue I personally could not care less, it has no bearing on my life.
Ultimately we are speculating about what the US capable of doing. If you receive a letter and/or cannot renew your passport in five years’ time, you win the bet. If not, I win the bet.
Or you could just become compliant and not have any tax debts to trigger passport denial, if you could overcome your fears of identity theft and paperwork errors leading to huge fines.
@ Plaxy
“But in fact the US never does any of this dodgy stuff the tax advisers keep warning their customers about. Instead they do things like using compliant foreign-based USCs as the key to turning non-US-money into US money.
But”
Um, yes but that has been before FATCA data “sharing” is up and running. All the IRS needs do is have the horrible plight of one poor soul who lost his/her passport, family, home, house just because they didn’t file to be in the news and all those that can somehow pay will be running to the IRS begging for mercy and forgiveness with cash in hand. That’s the IRS calculation.
People keep saying that the IRS is not trying to track down every single USC abroad. This is true. The IRS has every FI in the world outside the US to turn every USC abroad over to the US. The IRS now has the power to tell the US State Dept. to force USCs abroad to return to the US if they do not pay. The IRS is doing little other receiving and forcing others to do their dirty work.
On the cost efe tiveness business, does the law allow the IRS to discriminate between those who have US based assets and those who do not when compiling the data to send to State to revoke/refuse passports? Is State given this ability in regards to refusing renewals? As far as I have read and has been reported here, no such exists in the law nor its enabling regulations. Discussions on what these two departments will or won’t do outside the law, regs and history are pointless.
“To boil it down to a few words, the model is blackmail rather than seizure. The IRS gets its money if the victim cooperates.”
Theres that misuse of the word “cooperates” again. Not paying and losing everything is also “cooperating” as it puts force behind the threat making it easier to get others to pay.
@Plaxy
“he moral seems to be, don’t go there. Do not stack up $50,000 in US tax debt. Don’t file US tax returns, or if you do, pay the tax. Generic you.”
That would be true IF not for the fact that FIs are reporting to the Treasury dept.
@Plaxy
“It’s the consequences of defaulting on a debt.”
No its not. I for one owe no US taxes, based upon my earnings assets or whatever else I have done.
I may owe based upon what someone else has done under my name, ID theft.
I may owe based on what I have not done, file income tax returns proving I owe zero US tax. But these are not the same as defaulting on a debt.
“I suppose it is just a matter of time until student loan defaults are included in the USD 50,000 total. And alimony / child support, of course.”
As the US buys up school loans regardless where the student originally got the loan from, I could easily see this being included as natural progression of this.
Alimony/child support might already be grounds for denying passports based upon a court order in cases of flight risk to avoid these.
@nononymous
“Ultimately we are speculating about what the US capable of doing. If you receive a letter and/or cannot renew your passport in five years’ time, you win the bet. If not, I win the bet.”
Not at all. It is the law that passports renewal be denied. We are “speculating” on whether or not the US will enfoce this law, not a safe thing to speculate against.
Glad losing aveything is nothing more than a bet to you.
“Or you could just become compliant and not have any tax debts to trigger passport denial, if you could overcome your fears of identity theft and paperwork errors leading to huge fines.”
Suggesting a victim of a crime to overcome fears of being a victim of the same crime is…wow!
So, given my first remarks in this thread, “Today, I am at work after only ten hours of sleep total over the last three nights. How in the world can I possibly comply with any of this?
How can I possibly meet the requirements to gain Japanese citizenship?”
Please do tell me how to become compliant?