Ideas & Insights

IRS Could Enforce Travel Ban for Tax Debt

Expats and international travelers a focus of recently enacted tax laws

On August 3rd, new tax legislation — 26 USC 7345: Revocation or denial of passport in case of certain tax delinquencies — went into effect, taking aim at expats and international travelers. This represents the latest attempt by the Internal Revenue Service (IRS) to limit the amount in taxes lost each year from U.S. citizens living and/or working abroad and not reporting income, filing tax returns, or paying overdue taxes.

The process for enforcement begins with the IRS sending letters to persons with “seriously delinquent tax debt.” If the issue does not reach a timely resolution, the IRS will proceed by sending “certification” of the debt to the Secretary of State, who will then have the power to deny, revoke, or limit a passport.

How to know if you’re affected

This is may be an alarming surprise for expatriates living and working overseas, or U.S. citizens who travel internationally (for work or otherwise) but also have significant tax debt. Before panic sets in, it is important to note that the law lays out several key requirements before enforcement. In this case, “seriously delinquent tax debt” refers to an individual with an assessed tax debt of $50,000 or more, for which a tax lien has been filed and/or a levy has been issued.

While $50,000 (or more) in tax debt certainly seems like a lot, limiting the law’s impact. But as pointed out by Journal of Accountancy, 1.4 million U.S. citizens owe between $25,000 and $100,000 in tax debt, and 453,470 U.S. citizens individuals owed more than $100,000, per 2015 IRS data.

For those the law does affect, the impact could be disastrous. It would certainly be a rude surprise to arrange travel and accommodations, only to have your entry or exist from the U.S. denied. This could limit or undermine business opportunities for persons who rely on international travel. And expatriates living overseas may be barred from returning to the U.S. until the certification is removed.

Expats are at the highest risk

According to a 2014 study by the Treasury Inspector General for Tax Administration (TIGTA), 7.5 million Americans earn a living working abroad and are required to file and pay U.S. taxes. Complex filing and reporting rules, and simply not knowing they are required to pay U.S. taxes, are likely reasons why that same TIGTA study noted that the IRS sent 855,000 notices and letters to U.S. citizens overseas in 2014.

Further complicating the issue many expats may not know about their tax debt. International mail is notoriously unreliable in many regions, plus in some circumstances, the IRS is not required to send international mail.
How to get back on track

Expats and international travelers who are unsure whether they owe unpaid taxes should confirm their status with the IRS by calling 855-519-4965 or 267-941-1004, for international calls.

Persons who have been certified and a passport has been affected, or those who fear certification is imminent, should strongly consider consulting with a CPA who can help identify the best path back to good standing.

The good news is that once an individual has reconciled with the IRS, they will remove the certification within 30 days. The fastest way is to set-up an installment agreement with automatic deductions. Other options, including hardship situations and other agreement types, require submitting detailed financial information to the IRS, which could take months to confirm.