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
“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.”
Alimony / child support already has been used for passport revocation for a while.
“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?”
At the level of income you and I have, we’re eligible for assistance from a Low Income Tax Clinic. If you end up in a state that has an LITC (i.e. a state that isn’t Tokyo, Ontario, Bavaria, West Australia, etc. etc. etc.) they will probably even help you file a US Tax Court petition with motion to be exempted from paying the $60.00 filing fee. Since you’re a traitor you can expect the motion to be denid, and you’ll pay $60.00 and lose the court case, but the court case will exist.
“Alimony / child support already has been used for passport revocation for a while.”
That’s what I thought.
@ ND
“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?”
At the level of income you and I have, we’re eligible for assistance from a Low Income Tax Clinic. If you end up in a state that has an LITC (i.e. a state that isn’t Tokyo, Ontario, Bavaria, West Australia, etc. etc. etc.) they will probably even help you file a US Tax Court petition with motion to be exempted from paying the $60.00 filing fee. Since you’re a traitor you can expect the motion to be denid, and you’ll pay $60.00 and lose the court case, but the court case will exist.“
Ha! Thanks for that clarification. Far cry from the interesting court case Plaxy envisions though.
> Not at all. It is the law that passports renewal be denied. We are “speculating” on whether or not the US will enforce this law, not a safe thing to speculate against.
The law is already being enforced against those already deemed to be delinquent. We are speculating on whether the US will identify non-compliant US citizens as having tax debts in excess of $51k etc. etc. thereby making them subject to enforcement as well.
> Glad losing aveything is nothing more than a bet to you.
Since I stand to lose nothing from this, not needing or intending to renew my US passport, this is purely an intellectual exercise for me. I have another passport, lucky me. I do feel empathy for US-only citizens in a bad situation because of this, but sorry, it’s not a problem I personally suffer from.
> Suggesting a victim of a crime to overcome fears of being a victim of the same crime is…wow!
If the alternative is total destruction, as you seem to think, then indeed you might need to get over it.
> Please do tell me how to become compliant?
Enter the streamlined program and file three years’ tax returns and six years’ FBARs. Basta. You’ll probably earn back a few thousand each year in child tax credits, and the US won’t take away your passport. Looks like a win-win to me.
PS There is no penalty for not filing tax returns per se. The penalty is a percentage of the amount owing. Assuming you’ve owed nothing, years of non-compliance do not somehow mean you’ve already racked up enough in fines to lose your passport.
“Enter the streamlined program and file three years’ tax returns and six years’ FBARs. Basta. You’ll probably earn back a few thousand each year in child tax credits, and the US won’t take away your passport. Looks like a win-win to me.”
When, on 4 hours of sleep and working weekends too boot?
Not filing a tax return removes the FEIE, meaning by nit filing, I owe taxes to the US, am double taxed.
You are doomed. The end.
“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. ”
I’d say any individual living in a country where he or she has neither PR status nor citizen status has good reason to be concerned about their future in that country – especially if the country has stringent barriers to settlement.
Not a good situation. Unfortunately there are many in that predicament these days, as a result of war or ongoing political disorder or natural disaster. All too likely to get worse rather than better,
@japanT
As I have mentioned before, renew your passport now(early) while there is no lien filed against you, you will get another 10yrs, after which time things could have changed .
ND:
“Alimony / child support already has been used for passport revocation for a while.”
Yes, and with a very low threshold: $2500 as I have read.
Only relevant for those who owe alimony/child support, of course, just as the income tax law permitting passport revocation is only relevant for those with a tax debt,
Not a war on expats as far as I can see. The tax advisers seem to be trying hard to use it to scare up custom. I suppose they’re sorely missing the OVDP – especially as it’s now more widely understood that CBT is unenforceable.
“Ha! Thanks for that clarification. Far cry from the interesting court case Plaxy envisions though.”
I wasn’t talking about you. The ideal plaintiff would be a compliant US dual citizen with no US income/assets, willing and able to risk the loss of the passport.
May never happen, if the IRS follows past form and avoids any risk of successful court challenge to CBT.
ND:
“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.”
Very true. In any case, the IRS doesn’t appear to be using the passport revocation law against anyone who hasn’t already accepted the liability by signing the jurat and volunteering the necessary details. No one yet seems to have questioned the liability.
@Heidi
“@japanT
As I have mentioned before, renew your passport now(early) while there is no lien filed against you, you will get another 10yrs, after which time things could have changed .”
Very very tempting, but as there is at least one person living in the US using my identity and owning property, how do I know if there is or is not a lien filed against them in my name? Renewing now may just bring my time with my family to an end much sooner?
“You are doomed. The end.”
As it currently stands, yes. I and many others.
“Only relevant for those who owe alimony/child support, of course, just as the income tax law permitting passport revocation is only relevant for those with a tax debt,”
Wrong. Penalties and fees too.
““Ha! Thanks for that clarification. Far cry from the interesting court case Plaxy envisions though.”
I wasn’t talking about you. The ideal plaintiff would be a compliant US dual citizen with no US income/assets, willing and able to risk the loss of the passport.
May never happen, if the IRS follows past form and avoids any risk of successful court challenge to CBT.”
In the mean time, we small fry get burned. Yeah!
ND:
“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.”
Very true. In any case, the IRS doesn’t appear to be using the passport revocation law against anyone who hasn’t already accepted the liability by signing the jurat and volunteering the necessary details. No one yet seems to have questioned the liability.
Judging how the day will end over your 5am coffee. It is early.
Judging how the day will
“On the cost … [effectiveness] business, does the law allow the IRS to discriminate between those who have US based assets and those who do not”
The distinctions are inherent:
1. The US has the primary right to tax US income, and has the power to compel withholding of tax from payments of US income;
2. The US has the power to seize US assets.
In short, a USC has no reasonable grounds for not paying.
Whereas it’s the residence country that has the primary right to tax residence-country income. Anybody that signs up to give a share of their already-taxed income to the US does so voluntarily – perhaps to preserve their right to a US passport, for example, or perhaps simply out of irrational fear of the IRS.
So the US can’t easily force people to sign up to pay this top-up payment if they don’t step up and volunteer.
You use “volunteer” in the way the bullies providing seaman on china bound clipper ships might have useed the term. The “volunteered” seamanprefered the term “shanghied”, however.
But, yet again, you avade the question. Can Treasury and/or State not refuse renewal of a passport if the applying person based on cost effectiveness?
“But, yet again, you avade the question.”
No, I answered the question that’s of interest to me – and perhaps is of interest to some others reading this thread. Not likely to be useful to anyone in your situation.
So, those you do not pay and thus lose their passport have voluntarily left their familieas, homes and jobs?
WAh, what the hell, I will say it.
““But, yet again, you avade the question.”
No, I answered the question that’s of interest to me – and perhaps is of interest to some others reading this thread. Not likely to be useful to anyone in your situation.”
Elitist.
ND:
“the moral is don’t file US tax returns, period.”
Indeed. Couldn’t agree more. Filing US tax returns just gets one deeper in the dirt. If already filing, pay what’s owed and never file again.
“Alimony / child support already has been used for passport revocation for a while.”
‘Yes, and with a very low threshold: $2500 as I have read.
Only relevant for those who owe alimony/child support, of course, just as the income tax law permitting passport revocation is only relevant for those with a tax debt,’
No. Only relevant for those who HAVE BEEN ALLEGED TO OWE whichever ALLEGED DEBT. That’s why I described alleged debts which the IRS conceded after calendar call in Tax Court.
‘Not a war on expats as far as I can see.’
You usually see better than that; I assume you just overlooked this for some reason. A resident of the US who only has US citizenship and has their passport revoked has to stay home and work where they live. A non-resident of the US who only has US citizenship and has their passport revoked can’t stay home and can’t work where they’ve been living.