Federal government may withhold passports for outstanding tax debts

Beware, globetrotters: Failure to meet substantial tax obligations could result in the federal government seizing your passport.

Industry experts report that the application of such sanctions has increased recently.

A U.S. citizen reported by the IRS and the Treasury Department for having a “seriously delinquent tax debt” (now defined as more than $62,000) may be subject to a notification to the State Department.

This amount, which reflects the total federal tax due, including penalties and interest, is subject to annual adjustments for inflation.

The IRS clarifies that, in such circumstances, the State Department is likely to deny new passport applications and may limit or revoke existing ones due to serious noncompliance.

Since its inception in 2018, this control tool has been used primarily as a measure of last resort to recover unpaid taxes.

Experts say the failure to pay could significantly limit international travel, impacting not only personal vacations but also those who live or work abroad, who could find themselves tied to U.S. soil until their tax problems are resolved.

“The last step is revoking your passport,” says Troy Lewis, a CPA and professor of taxation at Brigham Young University in Draper, Utah. He adds humorously: “It’s a way to make sure the rich pay up. Without the ability to fly to Europe for the summer, they’re more likely to pay off their debts.”

The method is proving effective, as Todd Whalen, a Denver CPA, notes a recent increase in these cases, especially in the last three years. “It definitely gets people’s attention and calls to the IRS,” he notes.

Whalen recounts a telling episode: A client discovered his passport had been revoked just as he was about to leave for Mexico for his son’s graduation party.

Despite the effectiveness of this strategy, the State Department has not publicly disclosed how often passports are denied or revoked for these reasons, and the IRS has yet to comment on the issue.

Before resorting to passport revocation, the IRS ensures that all other avenues of collection have been fully pursued, Lewis explains. This typically involves non-responsive actions to federal tax lien notices, which grant the government a claim on a debtor’s assets without necessarily seizing them.

Legal support for these measures has been confirmed by numerous court decisions, highlighting the government’s power to enforce tax collection through passport restrictions, as seen in two recent appeal cases.

For those at risk of passport revocation, the State Department issues a CP508C notice, detailing the implications and urging debt resolution. This could involve full repayment, entering into a payment plan, or negotiating a compromise with the IRS.

Despite these measures, issues such as incorrect addresses resulting in missed notifications can cause unexpected travel disruptions, Whalen points out from his experience at Advanced Tax Solutions.

The IRS and the State Department provide mechanisms to avoid or resolve passport revocations, ensuring that even those who are abroad can return to the United States to resolve their tax situation and avoid being stranded in a foreign country.