Frost Law
H.R. 22, otherwise known as the Surface Transportation Reauthorization and Reform Act of 2015, is an interesting piece of legislation for reasons beyond the fact that it is one of few bills that has managed to pass in both the Senate and House of Representatives. The act deals with much more than whatever “surface transportation” is intended to encompass; in fact, H.R. 22, if enacted, has the possibility of impacting international transportation for taxpayers who have seriously delinquent tax debts. The bill is on its way to the President’s desk, meaning that it very likely will become law and, given the scope of the act, has the possibility of affecting thousands of taxpayers.
Unlike other heavy-hitting laws currently in the tax limelight, like the Foreign Account Tax Compliance Act (FATCA), H.R. 22 does not focus on reporting failures. Even if a taxpayer reports his or her income and account information accurately, it is the failure to pay tax obligations that will draw the taxpayer into the dangerous waters associated with H.R. 22. As written, the legislation currently intends to add a new section to the tax code, entitled “Section 7345: Revocation or Denial of Passport in Case of Certain Tax Delinquencies.” Simply put, failure to pay taxes, in certain instances, may keep taxpayers from using, renewing, or applying for passports.
The current threshold amount that will trigger the passport-snatching powers Section 7345 is $50,000. It is important to note that the $50,000 mark includes accrued penalties and interest. A taxpayer may be subject to passport revocation or denial even if his or her outstanding tax liability is less than $50,000, but meets or exceeds that number once penalties and interest have been added in. Once (or, if) passed, the new law will not take long in getting underway. By January 2016 the State Department will have the authority to adjust taxpayer passport statuses for those deemed seriously delinquent for failure to pay their $50,000 (or more) tax debts after receiving notice that a federal tax lien has been filed against the taxpayer.
Section 7345 does appear to leave outlets for addressing seriously delinquent tax obligations while maintaining a valid passport. For example, a tax bill that is administratively contested with the IRS or tax court is not considered a tax debt, and thus subject to the reach of Section 7345, until a final decision as to the taxpayer’s liability is formally made. Additionally, if a taxpayer enters into an installment agreement with the IRS, whereby the taxpayer agrees to make regular monthly payments towards a tax debt, the taxpayer would not be at risk for passport restrictions.
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