Don't Mess With Taxes

Photo courtesy Mike via Flickr CC

Even though the federal government is shut down, one thing U.S. travelers heading overseas don't have to worry about is getting a passport.

The U.S. Department of State says it will continue to issue the blue-bound international travel documents. It has that option since passport services are funded by fees, meaning they essentially pay for themselves and don't rely solely on funds authorized by Congress.

But if you're a world traveler who owes back taxes, you could be stuck here at home. The hold comes not from State, but from the Internal Revenue Service.

The IRS has announced that this month (again, pending resolution of the federal government shutdown) it will begin complying with a law that uses passports as leverage to collect what are deemed "seriously delinquent tax debts."

The travel-related action is mandated by the Fixing America's Surface Transportation (FAST) Act, which was signed into law in December 2015. That law requires the IRS to notify the State Department of taxpayers that owe substantial amounts.

After getting that alert, the State Department then must deny these folks' passport applications or renewals of current passports. In some cases, State may revoke the passports.

No travel trigger: So what does the IRS consider a substantial tax debt? The amount is adjusted annually for inflation. For 2018 it's more than $51,000 owed Uncle Sam.

That earns the minimum passport-pulling amount of $51,001 this week's By the Numbers figure.

Wait, say some tax-delinquent globetrotters, our overdue federal tax bill is "only" $45,000. Why have our papers been pulled?

Because, person spending money to go to Europe but not pay your taxes, the $51,001 trigger covers not just the due tax, but also penalties and interest.

In these cases, the IRS typically has filed a Notice of Federal Tax Lien and the period for the taxpayer to challenge it has expired. Or the IRS has issued a levy.

Clearing your travel: If you're really committed to your international travel, there are some ways to prevent the IRS from alerting the State Department of your big tax bill.

You can:

• Pay the tax debt in full.
• Set up an installment agreement with the IRS and make the payments as required.
• Make the IRS an offer in compromise that the agency will accept and then pay it.
• Pay the tax debt under the terms of a settlement agreement with the Department of Justice.
• Request or have a pending collection due process appeal with a levy.
• Have collection suspended because a you made an innocent spouse election or requested innocent spouse relief.

Passport action exceptions: In other cases, your passport won't be in danger even if you do owe the U.S. Treasury beaucoup bucks.

The FAST-mandated hold and/or revocation won't apply to your passport if:

• You are in bankruptcy proceedings.
• The IRS has identified you as a victim of tax-related identity theft.
• The IRS has determined your tax debt is currently not collectible due to hardship.
• You live in a federally declared disaster area.
• You have a request pending with the IRS for an installment agreement.
• You have a pending offer in compromise.
• The IRS has accepted an adjustment that will satisfy the debt in full.

Taxpayers serving in a combat zone who owe seriously delinquent tax debts also don't have to worry about losing their passports, which is the least Uncle Sam can do considering their literally more concerning circumstances. In these cases, the IRS postpones notifying the State Department.

Everyone else, though, must fully pay the owed-tax balance or make payment arrangements.

Or cancel your overseas travel and hotel reservations.

You also might find these items of interest:

• 6 ways to pay your estimated (and other) taxes
• Expatriations escalating again. Is it politics or taxes?
• 4 private collection agencies to go after overdue tax debts in 2017