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
@nononymous
Not offended. And no, I did not know what you would say but was quite sure it would be an asinine statement.
@JapanT
That comment didn’t strike me as being particularly asinine. To unpack it slightly: pretty much the only way a US citizen can mess up their plans to live the rest of their life abroad is to fulfill these three conditions: (1) live in a country where they cannot obtain citizenship; (2) have only US citizenship; (3) owe the US government enough money that they lose their US passport. You meet the first two conditions. At present nobody knows whether you meet the third condition, though you’re pretty convinced that you will soon if you don’t already.
Clarification: by “mess up” I really mean “be thrown out of country X” because of course banking/investment restrictions due to US personhood (mostly through birthplace) can seriously mess up a person’s life.
“(3) owe the US government enough money that they lose their US passport.”
No. (3) have enough trumped up allegations from the US government and no due process.
In particular, have enough allegations trumped up by embezzlers who, unlike Monica Hernandez, haven’t been caught yet.
FFS Norman, can we just leave it as “owe the US government” without getting into the why or how?
No need to constantly heap confusion and complication onto every statement made here, it doesn’t help others.
“That craziness pre-dates FATCA, as far as I know, so we can’t blame Obama for it.”
Sure we can. FBAR exisit before Obama too, but was a complete nonissue until FATCA. For those green card holders who left the US and left no assets in the US, this was a nonissue for them until FATCA.
FATCA changes these from being just stupid dormant laws into life ending monstrasities.
FATCA is still a non-issue for green card holders (or former green card holders from an immigration perspective). They would only be subject to FATCA reporting if they identified themselves as US persons. And if they didn’t know to file an I-407 on departure, odds are they won’t think to say “oh yeah, guess I’m still subject to US taxation” when a bank asks them about citizenship.
@nononymous
“JapanT
That comment didn’t strike me as being particularly asinine. To unpack it slightly: pretty much the only way a US citizen can mess up their plans to live the rest of their life abroad is to fulfill these three conditions: (1) live in a country where they cannot obtain citizenship; (2) have only US citizenship; (3) owe the US government enough money that they lose their US passport. You meet the first two conditions. At present nobody knows whether you meet the third condition, though you’re pretty convinced that you will soon if you don’t already.”
You go wide of the mark at “plans”.
“FFS Norman, can we just leave it as “owe the US government” without getting into the why or how?
No, we can not.
For one, it nulls repeated statements such as yours about owing the US gov.. Most who read “owe” naturally believe that the debt is legit making the debtor a bad person who deserves whatever is coming their way.
“No need to constantly heap confusion and complication onto every statement made here, it doesn’t help others.”
He dies not heap confusion and complication, the IRS does that. He is merely pointing out how this all plays out in the real world.
“FATCA is still a non-issue for green card holders (or former green card holders from an immigration perspective). They would only be subject to FATCA reporting if they identified themselves as US persons. And if they didn’t know to file an I-407 on departure, odds are they won’t think to say “oh yeah, guess I’m still subject to US taxation” when a bank asks them about citizenship.”
Except that all records are being compiled into one big data bank to mined for such information and cross checked. Japan is an example woth our “My Number” but the IT industry is working hard to sell Big Data and other such monsters to the financial industry who seem quite interested. This is just barely scratching the surface of that whole other kettle of fish that will play a very important role in all this if we let it. And let it we will because no one wants to bother them selves to educate themselves enough about it until it’s too late.
@nononymous
Your statement also ignores the realities for many USCs living abroad. For many, their US passsport is their lifeboat in case things go bad in their nation of residence.
@nononymous
“3) owe the US government enough money that they lose their US passport. You meet the first two conditions. At present nobody knows whether you meet the third condition, though you’re pretty convinced that you will soon if you don’t already.”
As there are no “extradition hearings” or the like to determine if one is the same person as who actually owes, it is not only a possibility, it is likely that people who owe nothing will lose their passports despite being totally innocent.
As one who has not filed, not due to your advice but as you do advise, owing penalties for not filing for the number of years I have not filed could very possibly put my iver the threshold. If not now,then sometime. When?
Okay then, you meet condition 3. Your clock is ticking.
The received wisdom, here and elsewhere, is that if you would have owed no taxes (thanks to FEIE or FTC) for the years you haven’t filed then there is no penalty for having not filed. Certainly lots of accounts here and elsewhere of people coming into compliance, either through streamlined or just quiet disclosure, and not being faced with penalties if there was no tax owing.
@nononymous
“Okay then, you meet condition3. Your clock is ticking.”
Not necessarily, but that does not matter as we can not raise the matter of legitimacy of the amount supposedly owed. Does not matter if you actually owe or not.
As for silent disclosures, it is reported that the IRS is looking into these, though it may be the case that they are looking into silent FBAR disclosures, but I think I have seen reports of them looking into silent back filing of tax returns too.
This too, as with all else about this whole mess, we must look at both the IRS’s intent and their ability to get the information and “cooperation” it seeks. They have made it clear that it is their intent and the very that FATCA exists is evidence that they can get a lot of “cooperation”.
Nononymous:
“The received wisdom, here and elsewhere, is that if you would have owed no taxes (thanks to FEIE or FTC) for the years you haven’t filed then there is no penalty for having not filed.”
You (generic you) don’t owe US tax unless
(a) you receive US income or
(b) have elected to be taxed by the US.
@plaxy
“You (generic you) don’t owe US tax unless
(a) you receive US income or
(b) have elected to be taxed by the US.”
And that affects passport revocation/denial how?
Nononymous:
“lots of accounts here and elsewhere of people coming into compliance, either through streamlined or just quiet disclosure, and not being faced with penalties if there was no tax owing.”
Also lots of accounts here and elsewhere of people with US citizenship who don’t have US-source income and have not elected to be taxed by the US and have never been faced with US tax penalties.
It is all a bunch of scary-scary apart from FATCA which is all too real and can affect people’s bank access.
‘FFS Norman, can we just leave it as “owe the US government” without getting into the why or how?’
Can’t we just leave it at “all US persons residing outside the US are tax cheats” without getting into the why or how?
Our entire problem is that innocent people are getting screwed, isn’t it?
“Our entire problem is that innocent people are getting screwed, isn’t it?”
That’s what I always thought.
Nononymous:
“FFS Norman, can we just leave it as “owe the US government” without getting into the why or how?”
That’s the first question though. A USC with no US-source income doesn’t owe the US government.
A USC who does have US-source income, or elects to file US tax returns, may well owe US tax. That’s life.
@plaxy
As usual, focusing on the money only. Again, how do either of your two points affect passport revocation or denial?
Nononymous:
“banking/investment restrictions due to US personhood (mostly through birthplace) can seriously mess up a person’s life.”
Indeed – the first consideration in planning one’s retirement, for an expat USC, should be to invest $2350 in the purchase of a CLN.
“Our entire problem is that innocent people are getting screwed, isn’t it?”
I would say, a lot of commenters on this blog mainly do what they can to explain to other USCs how they can avoid getting unnecessarily screwed by the US tax system.
Countering the scary-scary.
““Our entire problem is that innocent people are getting screwed, isn’t it?”
I would say, a lot of commenters on this blog mainly do what they can to explain to other USCs how they can avoid getting unnecessarily screwed by the US tax system.
Countering the scary-scary.”
Advice of which seems to be “Renounce and rejoice” or “ just don’t file”, neither of which suits many.