Don't lose your passport over unpaid back taxes

The IRS is about to step up its game to collect back taxes. Under a new law, the Fixing America’s Surface Transportation Act, or FAST Act, the IRS is required to provide a list of people who owe back taxes to the U.S. State Department, which can deny, revoke or limit the ability of these individuals to use their passports.

To be clear, this law isn’t something new this year. It was effective Dec. 4, 2015, after Congress approved it and President Obama signed it. However, the IRS needed some time to work through the process of identifying and reporting individuals who it says owe “seriously delinquent tax debt.” Now, the agency is ready to put this process into action.

The specifics of this process are spelled out in a section of the FAST Act titled Revocation or Denial of Passport in Case of Certain Tax Delinquencies, which essentially makes using a passport a tool to collect taxes. The law allows the State Department, when notified by the IRS, to revoke, deny or limit passports for anyone the IRS has certified as having seriously delinquent tax debt.

The passport restriction will affect people who owe larger amounts and travel internationally. It will also affect anyone looking to apply for or renew their passports.

Beginning in March, the IRS will send what it’s calling Letter 508C, which certifies your seriously delinquent tax debt, to the State Department and to the taxpayer’s last-known address.The taxpayer will be notified in a separate letter about passport restrictions.

So who is an individual with seriously delinquent tax debt? The IRS defines this as a person owing a legally enforceable tax liability of more than $50,000. While this sounds like a lot, it also includes penalties and interest -- and anyone who has been notified about unpaid taxes knows that interest and penalties can add up fast. 

These individuals must also have a tax lien filed against them, and all administrative remedies for lien relief must have lapsed or been denied. It also includes those who have had a tax levy issued.

A taxpayer on the list faces a 90-day process for resolving erroneous IRS certifications or getting back in good standing for past due taxes (such as by establishing a payment plan with the IRS). But there’s no grace period for resolving these issues before the State Department revokes a passport.   

The IRS will consider the following individuals to be excepted from the State Department’s passport restrictions:

  • Those who’ve entered an installment agreement with the IRS to pay their taxes
  • Those who’ve settled their tax debt through an offer in compromise or a Justice Department agreement
  • Those who appeal a tax levy through an IRS collection due process hearing
  • Those who request innocent spouse relief by filing Form 8857

If you owe a large amount of back taxes and want to keep your passport, the most expedient way is to enter into an installment agreement with the IRS.

If you think you may be subject to a passport restriction, don’t wait to find out until your next travel abroad. Starting in March, you can call the National Passport Information Center at 877-487-2778 to inquire about your situation. 

If you owe back taxes, hire a tax professional to advise you on the various arrangements to settle your debt with the IRS, or contact the IRS directly at 855-519-4695.

  • Ray Martin

    View all articles by Ray Martin on CBS MoneyWatch»
    Ray Martin has been a practicing financial advisor since 1986, providing financial guidance and advice to individuals. He has appeared regularly as a contributor on the CBS Early Show, CBS NewsPath, as a columnist on CBS Moneywatch.com and on NBC-TV's morning newscast TODAY. He has also appeared on the Oprah Winfrey Show and is the author of two books.