Don't Mess With Taxes

That's me in mid-February doing my personal Groundhog Day shadow prediction that warm weather was back to stay. (The full image is on my Instagram page.) I was sooooo wrong.

A couple of weeks ago, ecstatic over the return of warm weather and sunshine to Central Texas, I celebrated the arrival of spring.

Was I ever wrong. Today is cold, wet — I swear it was sleeting when I ran to my car this morning after yoga class! — and downright dreary. And it's only supposed to get worse, with local meteorologists predicting the latest hard freeze ever for the Austin area early next week.

Yuck. Yuckkety yuck yuck yuck. Or some other not-blog-friendly version of that using another consonant.

That's why I'm bundled up and surfing Caribbean resort websites.

Travel planning time: The hubby and I used to head regularly south for at least some of the winter when we lived in Maryland, either to Grapefruit League spring training games and/or the nearby tropical islands.

We got out of that habit when we moved to Florida and then back home to usually more temperate Central Texas. But we may have to start taking such trips again.

Actually, this time of year is prime vacation planning time. Folks are sick of the winter weather. Or they're realize that the school will be out soon. To get the best deals, travelers need to start firming up transportation and lodging early.

And folks who are contemplating a trip abroad also might need to start thinking about how they're going to pay their tax bills.

Passports threatened by big tax debts: In his never-ending quest for more money, Uncle Sam got the OK in 2015 via transportation bill to start denying or pulling passports of U.S. citizens who owed big tax bills.

Photo courtesy Mike via Flickr CC

When the Fixing America's Surface Transportation, or FAST, Act was enacted that December four years ago, it was projected the passport provision would bring in $398 million over 10 years.

The money comes from making certain owing passport holders, or those who want the international travel documents, pay their bills in full or set up installment plans. The initial tax-due threshold under FAST was $50,000. The law, however, provides for annual inflation adjustments.

For the 2019 tax year, taxpayers owing $52,000 or more could lose or not be issued passports.

As the date of the law's enactment indicates, this shouldn't be a surprise. And the Internal Revenue Service has repeatedly warned folks planning to go abroad of the problems they could face if they have, as the law describes them, "seriously delinquent tax debts."

The IRS this week issued another warning to U.S. tax delinquents making plans to travel abroad.

"[T]axpayers may not be able to renew a current passport or obtain a new passport if they owe federal taxes," noted the IRS, adding, "To avoid delays in travel plans, taxpayers need to take prompt action to resolve their tax issues."

How the passport tax process works: The IRS also reiterated the steps it takes, which it began implementing in January 2018, to deny or revoke (in conjunction with the U.S. Department of State, which has passport authority) the affected tax debtors' travel papers.

The IRS must notify the U.S. State Department of taxpayers the tax agency has certified as owing, this year, $52,000 or more.

That amount includes not just the tax due, but also any penalties and interest for which the IRS has filed a Notice of Federal Tax Lien and the period to challenge it has expired or the IRS has issued a levy.

These certified taxpayers then will receive a Notice CP508C from the IRS. The notice explains what steps a taxpayer needs to take to resolve the debt. Note, the IRS doesn't send copies of the notice to folks whom the taxpayers have given power of attorney (PoA), so if you get this notice, make sure you let your tax professional/PoA know.

If you can't pay the amount due immediately, you or your tax adviser need to contact the IRS to discuss ways resolve the debt, including the establishment of a payment plan or other payment alternatives.

Once the seriously delinquent tax debt is resolved, either by being paid it in full or being paid off via an installment arrangement, the IRS will reverse the taxpayer's certification within thirty days.

The State Department then will remove the certification from the taxpayer's record, so the passport no longer will be denied.

Special tax-related passport actions: The IRS can expedite the decertification notice to the State Department for a taxpayer who resolves their debt, has a pending passport application and has imminent travel plans or lives abroad with an urgent need for a passport.

The IRS also will not certify a taxpayer as owing a seriously delinquent tax debt or will reverse the certification in certain extraordinary situations. They include circumstances where a taxpayer:

• is in bankruptcy,
• is deceased,
• is identified by the IRS as a victim of tax-related identity theft,
• has an account the IRS has determined is currently not collectible due to hardship,
• is located within a federally declared disaster area,
• has a request pending with the IRS for an installment agreement,
• has a pending offer in compromise with the IRS, or
• has an IRS accepted adjustment that will satisfy the debt in full.

In addition, where a taxpayer is serving in a combat zone and owes a seriously delinquent tax debt, the IRS will postpones notifying the State Department of the delinquency and the taxpayer's passport is not subject to denial during the time of service in a combat zone.

How to resolve tax issues: Even if you don't have a tax bill large enough to threaten your passport, you still need to take care of it as soon as possible. The longer you wait, the more you'll owe due to accruing penalties and interest.

Ways to stay on the right side of the tax collector include:

• Paying the tax debt in full,
• Paying the tax debt under an approved installment agreement,
• Paying the tax debt under an accepted offer in compromise,
• Paying the tax debt under the terms of a settlement agreement with the Department of Justice,
• Having requested or have a pending collection due process appeal with a levy, or
• Having collection suspended because a taxpayer has made an innocent spouse election or requested innocent spouse relief.

You can seek an IRS payment plan by filing Form 9465. You can download the form and mail it along with a tax return, bill or notice to get the payment plan started. If you're Some taxpayers also may be able to use the IRS' online payment agreement to set up a monthly payment agreement.

Note that in some payment plan cases, there is a set-up fee, which could be as much as $149, and which will be added to the tax bill you want to pay off over time.

Some tax debtors also might consider making the IRS an offer in compromise (OiC). This is an agreement between a taxpayer and the IRS to settle the tax liability for less than the full amount owed. You can check out the IRS' online Offer in Compromise Pre-Qualifier tool to help you decide whether an OiC is the appropriate move for you.

Here's hoping you can settle your serious tax debt and still take the international trip of your dreams. But you better get to work on paying that tax bill soon, before all the good flight and hotels are booked.

You also might find these items of interest:

• Summer home rentals net some owners tax-free income
• Attention global shoppers: duty-free goods not always fee free  
• Taxpayer Advocate argues for revised tax-related passport revocation process

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