Looking to travel outside the U.S.? Beware passport travel may be unlikely for seriously delinquent taxpayers. As we enter 2018, the IRS has renewed its commitment to the FAST Act (Fixing America’s Surface Transportation Act). Specifically, the Act authorizes the IRS commissioner or specified delegates to prevent the State Department from allowing passport applications or usage by seriously delinquent taxpayers.
Updates for 2018
The Act’s initial threshold for seriously delinquent taxpayers – $50,000 of outstanding tax, penalties, and interest owed to the IRS for all combined tax years – shifts with inflation each year. Starting in 2018, cost-of-living increases have pushed the minimum balance due up to $51,000. The IRS must have filed a Notice of Federal Tax Lien with a past-due challenge deadline or issued a levy for the balance to fall under the FAST Act regulations.
Remedies
According to the IRS webpage addressing Notice 2018-1, taxpayers can prevent the IRS from notifying the State Department by doing the following:
- Paying the tax debt in full
- Paying the tax debt timely under an approved installment agreement (requested with Form 9465),
- Paying the tax debt timely under an accepted offer in compromise (determine eligibility using the Offer in Compromise Pre-Qualifier tool on the IRS website),
- Paying the tax debt timely under the terms of a settlement agreement with the Department of Justice,
- Having requested or have a pending collection due process appeal with a levy, or
- Having collection suspended because a taxpayer has made an innocent spouse election or requested innocent spouse relief.
If the IRS has already reached out to the State Department, completion of one of these remedies will generally require the IRS to issue a reversal notice to both the individual taxpayer and State Department within 30 days. Individuals can challenge delinquency certifications through the tax court system.
Exceptions
The IRS also stipulates that the FAST Act penalties will not apply to any taxpayer:
- Who is in bankruptcy
- Who is identified by the IRS as a victim of tax-related identity theft
- Whose account the IRS has determined is currently not collectible due to hardship
- Who is located within a federally declared disaster area
- Who has a request pending with the IRS for an installment agreement
- Who has a pending offer in compromise with the IRS
- Who has an IRS accepted adjustment that will satisfy the debt in full
Takeaways
While these rules can cause administrative hassle and restrict taxpayer freedoms, IRS representatives have expressed a willingness to reach offers in compromise, settle on installment agreement terms, or work with delinquent taxpayers in other ways. If a taxpayer receives delinquency certification from the IRS, the State Department will allow passport applicants 90 days to resolve their delinquent status. The IRS cautions taxpayers who need to travel within 90 days to contact the IRS and resolve the matter within 45 days of the application date to allow sufficient time for the IRS to notify the State Department of resolution. With some forethought regarding travel plans and a proactive approach to IRS correspondence, the FAST Act should not create a major obstacle.
Greg Ward, CPA, joined Dalby, Wendland & Co.’s Glenwood Springs office in August of 2013. He attended the University of Illinois at Urbana-Champaign and attained a bachelor’s degree in accounting, with highest honors. Greg works in the areas of individual taxation, estates and trusts, small business taxation, tax-exempt organization reporting, and foreign reporting. He is a member of the American Institute of CPAs, Colorado Society of CPAs, National Eagle Scout Association, and volunteers his time as the treasurer for the Colorado Society of Certified Public Accountants Roaring Fork Chapter.
