Small Business Accounting - In a
Notice, IRS has provided guidance for implementation of new Code Sec. 7345,
which was added by the Fixing America's Surface Transportation (FAST) Act (P.L.
114-94, 12/4/2015) and requires IRS to notify the Department of State of
taxpayers certified to have "seriously delinquent tax debt". Upon
receipt of such certification, the State Department is generally required to
deny a passport application for such individuals and may also revoke or limit
passports previously issued to such individuals.
Background. The FAST Act added a new Code section,
Code Sec. 7345, to Chapter 75 of the Code. Under Code Sec. 7345, having a
"seriously delinquent tax debt" is, unless an exception applies,
grounds for denial, revocation, or limitation of a passport, effective Jan. 1,
2016.
ABA Tax
Accounting observation: Passports
are handled by the State Department, not IRS. This new provision effectively
authorizes disclosure of certain tax information from IRS to the State
Department, which in turn will use this information in making passport-related
determinations.
A
seriously delinquent tax debt is generally an assessed tax debt that exceeds
$50,000 (adjusted for inflation for calendar years beginning after 2016) and
for which a notice of lien has been filed under Code Sec. 6323. (Code Sec. 7345(b)(1),
Code Sec. 7345(f)) However, under Code Sec. 7345(b)(2), a seriously delinquent
tax debt does not include a debt for which: there is an agreement in place to
repay the debt under Code Sec. 6159 or Code Sec. 7122; or collection is
suspended because of a collection due process hearing under Code Sec. 6330 or
because innocent spouse relief under Code Sec. 6015(b), Code Sec. 6015(c), or
Code Sec. 6015(f) is requested or pending.
In
addition, Code Sec. 7508(a)(3) provides that certification of a seriously
delinquent tax debt under Code Sec. 7345 will be postponed while an individual
is serving in an area designated as a combat zone or participating in a
contingency operation.
The
FAST Act provides procedures for, and restrictions on, IRS's disclosure of the
return information for purposes of passport revocation, as well as procedures
for how an individual who was certified by IRS as having a seriously delinquent
tax debt gets that certification reversed (i.e., in the case of an error).
In
addition to the statutory exceptions set forth in Code Sec. 7345(b)(2) and Code
Sec. 7508(a), the Internal Revenue Manual (IRM) is to be updated to include
information about circumstances under which a tax debt will not be subject to
the certification process. IRS will continue to monitor the certification
process after implementation and may update the IRM if necessary to meet the
requirements of the program.
New guidance. If an exception set forth
in Code Sec. 7345(b)(2) applies, the State Department will not be notified that
the taxpayer has a seriously delinquent tax debt and therefore the provision on
denial of a passport of or revocation of a passport will not apply with respect
to such taxpayer. In addition, if after the State Department has been notified
of a seriously delinquent tax debt certified under Code Sec. 7345 the IRS
Commissioner or specified delegate determines that the tax debt should not have
been certified (for instance, if a statutory exclusion or one of the
circumstances set out in the IRM applies), IRS will notify the State Department
in accordance with Code Sec. 7345(c) that the certification has been reversed.
The reversal notification will be made as soon as practicable after the
determination. Upon receipt of a notice from IRS under Code Sec. 7345(c) that
the certification has been reversed, the FAST Act requires the State Department
to remove the certification from the individual's record with respect to such
debt.
The
certification of a seriously delinquent tax debt to the State Department will
be reversed if the tax debt no longer qualifies as seriously delinquent under
Code Sec. 7345(b)(2). Therefore, taxpayers notified that certification of their
seriously delinquent tax debt has been transmitted to the State Department
should consider paying the tax owed in full, or entering into an installment
agreement under Code Sec. 6159 or an offer in compromise under Code Sec. 7122
with respect to the debt.
When
a certified taxpayer applies for a passport, the State Department, in general,
will provide the applicant with 90 days to resolve their tax delinquency (such
as by making full payment, entering into an installment agreement under Code
Sec. 6159, or IRS acceptance of an offer in compromise under Code Sec. 7122)
before denying the application. If a taxpayer needs their passport to travel
within those 90 days, the taxpayer must contact IRS and resolve the matter within 45 days from the date of
application so that IRS has adequate time to notify the State Department.
Generally,
the sole remedy for a taxpayer who believes that a certification is erroneous,
or that the Commissioner or specified delegate incorrectly failed to reverse a
certification because the tax debt is either fully satisfied or ceases to be a
seriously delinquent tax debt by reason of Code Sec. 7345(b)(2), is to file a
civil action in court under Code Sec. 7345(e). The taxpayer may not go to IRS
Appeals to challenge the certification or the decision by the Commissioner or
specified delegate not to reverse a certification. However, the taxpayer may
contact the phone number in the Notice CP508C to request reversal of the
certification if the taxpayer believes that the certification is erroneous.
References: For revocation of passport
for taxpayer with seriously delinquent tax debt, see FTC 2d/FIN ¶ V-3507;
United States Tax Reporter ¶ 73,454.
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