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
‘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.’
I think the plaintiff would have to be someone who actually had their passport revoked.
‘May never happen, if the IRS follows past form and avoids any risk of successful court challenge to CBT.’
The IRS wins court challenges against CBT. Some cases involve flight attendants and pilots who do part of their work over international waters. Some cases involve pastors and others who were self-employed in Canada and paid double CPP premiums but didn’t pay double SS premiums in addition to it (before the Canada – US totalization treaty came into effect).
“Only relevant for those who HAVE BEEN ALLEGED TO OWE whichever ALLEGED DEBT.”
Maybe. I don’t know the details of the child support passport revocation provision, so I accept that I probably shouldn’t have commented on that, The income tax passport revenue provisions are only relevant for those who have filed US tax returns, thereby accepting liability for the debt as assessed by the IRS; they do of course have a right to challenge the assessment – though, as you’ve often pointed out, that right is more apparent than real.
“. 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.”
However, it’s easier to get serious money from the US residents who really really want to keep their passport.
“I think the plaintiff would have to be someone who actually had their passport revoked.”
I agree.
@nononymous
Sure, I’ll bet ya. But be warned, I have a very good track record betting on this. Have not lost yet, sadly.
Just three weeks ago, a coworker was asking if anyone knew where they could open an account outside Japan. They were refused everywhere they trued. 3 or 4 years ago, I bet this person that this would happen. I won that bet.
Another bet made with a friend was over my banks reporting to the US. “Oh, come on, your banks (in Japan) are never going to report your account to the US!”, they said. “They will or be fined.” I countered. “You wanna bet on that?” they asked. “Sure, the usual?”. “You’re on!” Won that one too. Although, when the bet was made I was of the belief that the data sharing was a future event. I have since learned that at the time of the bet it was already then a past and present situation.
Another group of friends, all Brits, listened very intently when I first told them of FATCA, FBAR and CBT in general. Sympathetic though powerless to help, they all saud that they were glad that they were not American. I told them that once the ball gets rolling, that they too will have similar problems, that every country is going to have they own version of FATCA. “You really think so?” one asked. “Will out a doubt.” At which point they thought I was crazy and several asked if I’d bet on it. I did. The last couple of times we’ve met, though not a topic of general discussion, a couple here, three there: were discussing how their retirement plans were destroyed or how they could salvage theirs. Brexit plays a big role in this, but so does the fact that Japan now has its own FATCA and just like my coworker three weeks ago, they are learning that FIs outside Japan do not want the headache of reporting their accounts to Japan’s tax authority and are closing their accounts and barring them from opening new accounts.
Won that bet/those bets, depending how you want to count them, too. Sadly.
So, bet away.
“However, it’s easier to get serious money from the US residents who really really want to keep their passport.”
Of course. Because those of us living abroad with non USC families would have less reason to really really want to keep our passports than US residents.
“those of us living abroad with non USC families would have less reason to really really want to keep our passports than US residents.”
Most won’t owe $50,000 in US taxes, given that compliance with US tax law is one of the conditions of keeping the passport.
“Most won’t owe $50,000 in US taxes, given that compliance with US tax law is one of the conditions of keeping the passport.”
Yet again you leave out the fines and penalties. Oh, and that fact that nonfiling can eliminate the Foreign Earned Income exclusion meaning that taxes and penatlies on them are owed on top of whatever penalties one racks up fir failure to file.
“again you leave out the fines and penalties.”
No – I assume most USCs who only have a US passport are probably compliant, or don’t know US law requires them to file,
“again you leave out the fines and penalties.”
‘No – I assume most USCs who only have a US passport are probably compliant, or don’t know US law requires them to file,’
But those who are compliant are the ones who get the fines and penalties that will get their passports revoked. The only way to be safe is not to file (regardless of what they know about US law).
“Japan now has its own FATCA”
I doubt that very much. Japan has reporting of foreign assets of RESIDENTS OF JAPAN, not of Japan’s diaspora.
Oh, a friend of mine, a Japanese National then living in Germany was “asked” by her bank in Germany to provide information based upon her being a Japanese National. She was allowed to close the account, though. That would have been in either 2016 or 2017.
A coworker is Australian married to a JN. The JN has assets in Australia, a home among them. He was dealing with getting “caught” a few years ago. I know they did not report these overseas assets on their Japanese tax returns, but “caught” they were.
But, you are correct in that I was refering to British Nationals living in Japan, but, any Japanese resident is supposed to report their overseas assets if over a certain amount, including JNs. My spouse now has to. Law is from 2011. Reporting from overseas FIs I think is from a later law, 2013 perhaps.
lNo – I assume most USCs who only have a US passport are probably compliant, or don’t know US law requires them to file,”
Why would you posdibly believe the former, based upon the numbers of overseas returns the IRS receives?
Most are in the latter, as was I until I last renewed my passport. Most do not want to hear anything about it when I try to tell them.
Coming soon, when a USC goes to renew their passport they will be forced to sign a statement that they are compliant with US tax obligations and will be denied a new passport if they are not or lie about being compliant. The IRS having FATCA data to check against a passport renewal applications makes it hard to skirt this.
“But those who are compliant are the ones who get the fines and penalties that will get their passports revoked. The only way to be safe is not to file (regardless of what they know about US law).”
They’ll make their own decisions, obviously.
At some point approximately 8-10 years ago the US passport application did include a declaration of tax compliance, with the usual $500 perjury warning. Then it reverted back to just giving your SSN. I know this because I didn’t renew until after the change.
“At some point approximately 8-10 years ago the US passport application did include a declaration of tax compliance, with the usual $500 perjury warning. Then it reverted back to just giving your SSN. I know this because I didn’t renew until after the change.”
I renewed five years ago and it was on mine.
On the State Department website, people without SSNs are told to sign an affidavit stating that, under penalty of perjury etc. My local embassy instead requires that we e-mail the nearest SS office (in a neighboring country) to confirm that we have never been assigned an SSN, then append a copy of their e-mail to our application. Strange.
(the above refers to people applying for US passport renewal)
I wonder how much this can be used. As with other cases it will probably concern US citizens residing in the US and/or with US assets; also people who have attempted to comply. But as abundantly stated here, this will have no impact on the the average Joe Abroad, for the forseeable future, whether he’s filing or not. Nevertheless the impact is not only symbolic; it is another Damocles’ Sword over our heads. As a friend who happens to be of Jewish-Turkish ancestry pointed out, it’s always best to get a passport from the country you are living in (she’s now in the process of obtaining yet another one in a European country known for mountains and banks).
For what it’s worth I renewed 5 years ago, to the month, and the application I submitted required an SSN but no declaration of tax compliance.
“as abundantly stated here, this will have no impact on the the average Joe Abroad, for the forseeable future, whether he’s filing or not. Nevertheless the impact is not only symbolic; it is another Damocles’ Sword over our heads. As a friend who happens to be of Jewish-Turkish ancestry pointed out, it’s always best to get a passport from the country you are living in”
It’s definitely best to have residence rights, so you can carry on living there.
That’s the Sword of Damocles hanging over the head of a person without residence rights: the risk of expulsion. IMO.
“It’s definitely best to have residence rights, so you can carry on living there.”
Are you certain sure that legal aliens can obtain “residence rights” as opposed to “resudence permission”? The world is a strange place and such a nation that would give actual residence “rights” may very well exist, though I much doubt it.
I’m certain sure an alien would have its work cut out for it to meet the requirements for settlement in the UK.
Residence rights for humans just means (in the UK) the right to remain as long as you don’t give them a reason to withdraw the right; same with citizenship.
I’ve had 2 passporrts for 30+ years even tbough at the time Homelanders tbought of it as unpatriotic. My thought then was it did no harm to have it and may well apply for the 3rd one I’m eligable through ancestry.
Sorry no IRS paper pusher is controlling my right to travel.
“As a friend who happens to be of Jewish-Turkish ancestry pointed out, it’s always best to get a passport from the country you are living in”
‘It’s definitely best to have residence rights, so you can carry on living there.’
{Are you certain sure that legal aliens can obtain “residence rights” as opposed to “resudence permission”? The world is a strange place and such a nation that would give actual residence “rights” may very well exist, though I much doubt it.}
The purpose of the passport is to suggest residence rights instead of residence permissions. In some countries it works that way; for example Canada’s Charter of Rights guarantees Canadian citizens the right to reside in Canada.
In some countries it doesn’t work that way.
In the 1990’s Japan recognized the Japanese citizenship of war orphans who had been left behind in China. Japan issued them passports but wouldn’t let them come to Japan until they had guarantors. Later Japan changed its mind and let them come to Japan without guarantors.
The US issues passports to non-citizen nationals. To the best of my knowledge anyone who acquires non-citizen national status now can reside in the US, but I’m not sure if that’s a right or a permission. During part of the 20th century a law prohibited some non-citizen nationals from residing in the US except by obtaining green cards, and very few of them were eligible for green cards.
Japan issues travel documents to some people but the documents aren’t passports. These people, or their parents, or their grandparents, had had Japanese citizenship forced on them and then had Japanese citizenship stripped from them. Even if they’ve never set foot in Korea and don’t speak Korean, the Japanese travel documents designate them as Korean citizens. Japan can deny reentry to those people if they travel abroad.
“Residence rights for humans just means (in the UK) the right to remain as long as you don’t give them a reason to withdraw the right; same with citizenship.”
“Rights” may be another of a growing long line of misunderstood and misused words. Rights need not be applied for. Rights do not expire. Rights exist whether they are exersized or not. Rights can not be taken away except when laws carrying the loss of rights as a penalty have been violated and the court has been shown reasonable cause to suspect one as the violator of those laws.
Are you certain sure that a PR visa holder in the UK has no obligation to maintain a passport from their nation as a condition of keeping their PR visa? If such is the case, lucky for those UK PR visa holders.
Can the UK withdraw citizenship as easily as it can a PR visa? Is it as difficult to withdraw a PR visa as it is citizenship?
“Residence rights for humans just means (in the UK) the right to remain as long as you don’t give them a reason to withdraw the right; same with citizenship.”
This is a low meaning content sentence. Are the reasons for withdrawing PR visas the same for withdrawing citizenship? A Japanese National does not lose their nationality nor their right to reside in Japan if they have their Japanese passport revoked. Legal aliens holding PR visas granted by Japan lose their permission to be in Japan if their passports are revoked or expire. Are you certain sure that it is not the same in the UK?
You know, now that a think of it, my British friends told me of some difficulties they were having moving back to the UK with their JN wives. I believe that least one and maybe two of the wives have PR visas. Despite this fact and the fact that they have long been married to a British national they are now required to have above a certain amount of cash to move to the UK and muct msintain above that amount to remain in the UK. As these talks are over drinks, I am very fuzzy on the details, but changes in UK imigration law over the past few years have really altered what they are able to do in retirement. A has Brexit and bank lock out due to CRS.