Losing Your Passport For Tax Debt

Here is something you don’t see every day:

There is a section in the tax Code that can affect your passport. It entered the tax law in 2015, and it allows the IRS to notify the State Department if you have a seriously delinquent tax debt.

How much tax debt are we talking about?

Around $52,000.

As a career tax CPA, I do not consider $52,000 enough to hold-up someone’s passport. Granted, my perspective is a bit skewed, as average folk (like you or me) are not likely to require my services, at least not on a repetitive basis. Still, I have had friends and acquaintances who have danced the tax tango near or above $52 grand, so I know that average folks can get there.

If the IRS notifies the State Department, the law requires them to deny your passport application or renewal.

That will put a chill on your travel plans.

How do you get out of this predicament?

As a generalization, the IRS does not want to chase you down. They certainly do not want to seize your assets or bounce your passport. What they want is your money.  

I do not immediately know Derrick Tartt’s issue with the IRS, but I can tell you that it has gone cold. If his issue was still being handled – in Appeals, Tax Court, a payment plan or whatnot – this should not have happened. I will not say “would not,” as I have been in practice long enough to see too many “would nots” land on my desk.

How should Mr. Tartt handle this?

He is going to have to move his file from cold to warm. This may mean writing a check or entering a payment plan.

That presumes he owes the tax.

What if he disagrees that he owes the tax, or at least disagrees that he owes all of it?

The situation becomes trickier. His file has moved to Collections, and that crowd does not care whether you owe or not. Their only concern is prying money from you.

Am I being unfair?

Let me give you an story. We have a client who got himself into a tax hole a few years ago. He has been working his way out, and he was very optimistic that his 2018 return would have a large enough refund to pay off the back taxes, interest and penalties. He was partially correct, as he did have a refund, but it was not enough for payoff in full. It did however put him close enough that he could write a check for the balance.

I called Collections to hold back the hounds. I requested that the refund be applied (which would happen automatically, but I wanted to talk to them) and requested a bit more time for the balance, as he is presently battling a second round of prostate cancer. His attention is … shall we say … elsewhere, understandably.

Understandable for you or me, but not for Collections. One would have to wheel in the Gran Telescopio Canarias telescope to find empathy in that universe. I may as well have been speaking with Arthur Fleck.

If Mr. Tartt disagrees that he owes tax (or some of it), his advisor will have to reopen his file. There may be several possibilities, depending on the facts and the amount of time lapsed, and he should seek professional advice.

That will not happen fast enough to get Mr. Tartt to the Dominican Republic or Cayman Islands in the near future, however.

I hope it works out for Mr. Tartt.