Are you planning to travel out of the country this summer? We hope you are not in tax debt because that could put a damper on things. Did you know that starting in February 2018, the IRS directed the State Department to deny or revoke passports of those owing $51,000 or more in back taxes?

Well, it did. The official rule is called IRC Section 7345F and lays out all the details.

Losing your passport, not being allowed to renew it, or having your first passport denied for owing taxes can keep you from the beaches at Cancun to the beaches in the French Riviera.

Owing back taxes is already threatens your financial picture. Add in the stress of knowing you owe Uncle Sam money won’t make your vacation any happier. But having no passport is the worst.

IRC Section 7345F - An Overview

In a nutshell, here is what the new rule says.

• If you owe legally-enforceable, unpaid back taxes to the tune of $51,000 plus interest and penalties, and
• A notice of federal tax lien has been filed, and
• All administrative remedies have been exhausted or lapsed

The IRS will certify that debt to the State Department. The State Department will not issue you a passport after that, with some exceptions. By the way, the amount listed above is indexed to inflation, meaning it can change every year.

Also, the IRS can take a different step, issue a levy, and notify the State Department with the same result for you.

On a good note (relatively speaking), the delinquent tax is limited to Title 26 liabilities under the U.S. Tax Code. Any debt collected by the IRS like the FBAR Penalty and Child Support debt is not included in this rule.

Here are a couple of documents you need to know about.

• Taxpayer Notification - Notice CP 508C is the written notification the IRS is required to send when it certifies a seriously delinquent tax debt to the State Department. It is posted by regular mail to your last known address. However, it is not sent to your Power of Attorney, so if all your affairs are being handled by a POA, that entity will not learn about this.
• Reversal of Certification - Notice CP 508R is the written notification you receive, through regular mail to your last known address, that tells you the IRS is reversing the certification shown in 508C. It means the debt is fully satisfied or cannot be legally enforced, it is no longer seriously delinquent, or the certification was in error.

Understand that this can take time, so even if the certification is in error, it will still take the IRS around 30 days to make the reversal and provide notification to the State Department “as soon as practicable.”

How the Rule Impacts You

First of all, you lose your passport, and it will take a while to get it back, no matter what. The new tax law passed in 2015 included language about passports. It requires the State Department to deny passports to anyone who owes the IRS a significant amount of money.

• No new passport application will be processed.
• An expired passport will not be renewed.
• A current passport may be revoked or limited.

If you attempt to travel out of the country, you will not be allowed out of the country until you fix the problems with your back taxes. You may lose the money you paid for the vacation, too. If you have any idea that you have tax problems of this magnitude, check with the travel agencies and ticket offices about the chances for a refund or trip insurance.

What Can You Do if Your Lose Your Passport for Back Taxes?

On another relatively good note, you aren't expected or required to pay the entire tax debt to get your passport back. You have quite a few options, in fact. Most of these will keep the IRS from sending the notification to the State Department in the first place if you take action as soon as you know of the tax debt.

• You can pay the taxes in full, and be done with it.
• You can set up an installment plan with the IRS to pay your debt over time. Just be sure to keep up timely payments.
• You can go for an Offer-in-Compromise, which is a method of cutting your tax bill. However, there are restrictions to who can receive an Offer-in-Compromise, so see someone like us, Top Tax Defenders.
• You can show the Notice CP 508C is erroneous (issued in error).

As long as you are seen to be taking care of the problem, you can get your certification reversed and be on your way, if not very quickly. The State Department only places a hold on your application, giving you 90 days to make things right.

A couple of other ways you can resolve the issue include a requested or pending collection due process appeal with a levy or having collection suspended because you have or have requested innocent spouse relief.

If you take no action within 90 days, however, your passport application will be denied.

The Rule Doesn’t Apply to Everyone

There are circumstances under which the IRS will not issue a certification to hold up your passport. They include those who…

• Are in bankruptcy
• The victims of identity theft
• Serving in a combat zone
• Living in a federally declared disaster area
• Have been determined by the IRS to be in hardship and so your account is currently not collectible
• With pending offers in compromise or pending requests for installment agreements
• Are deceased. Even the IRS admits it can’t collect from someone who is no longer living.

In most of these scenarios, you might question a decision to make summer travel plans of any sort, but we won’t judge. Sometimes travel is necessary. It isn’t always a vacation. Also, the State Department can issue a passport for emergencies or for humanitarian reasons so a U.S. citizen can return from overseas.

Many people don’t realize that this new rule is in place. They find out about it when they receive the notification from the IRS, or when their passports are denied or revoked.

It’s unlikely the federal government will change its mind about this rule. So far, it’s netted them $11.5 million from people settling their debt to receive a passport. Another 114,000 people have signed installment agreements. Passports have proven to be a powerful incentive for people to pay their taxes.

You can avoid the issue entirely by paying your taxes on time or setting up an agreement when you know you can’t pay in full. Don’t wait until the State Department denies your passport to take care of your debt to Uncle Sam.