NOTICE TO AMERICAN TRAVELERS

by Michael Wiener, E.A.

Congress passed FATCA a few years back. It was  aimed at reaching money of tax evaders hidden  offshore, as a result it is nearly impossible for U.S.  persons to hold or open bank or brokerage accounts outside  of the U.S. That is, for a tax policy objective, the freedom  enjoyed by U.S. persons to hold their liquid assets wherever  they want in the world has been substantially curtailed.

The construction of Gulag America under the guise of tax  policy continues apace with the  passage and signing of the Fixing  America’s Surface Transportation  (FAST) Act in the last few days.

The Act adds new Section 7345  to the Internal Revenue Code.  This provision provides that if  the IRS Commissioner certifies  that a taxpayer is delinquent in  his her federal taxes to the tune  of $50,000 or more, the Secretary  of State can take action to deny,  revoke or limit the taxpayer’s passport. That is, persons with  delinquent taxes may now be barred from leaving the U.S.

The U.S. has enforced its taxes for over one hundred years with  civil and criminal enforcement mechanisms. Apparently, that  enforcement arsenal is no longer sufficient, and U.S. citizens  in financial straits will now lose their travel “privileges.”

IRS POWER TO REVOKE  PASSPORTS SIGNED INTO LAW

The passport provision is now official, as President Obama  signed the five-year infrastructure spending Bill. It adds a new  section 7345 to the Internal Revenue Code. It is part of H.R.  22 – Fixing America’s Surface Transportation Act, the “FAST  Act.” Why are passports covered in the tax code, you might  ask? The title of the new section is “Revocation or Denial of  Passport in Case of Certain Tax Delinquencies.” The idea goes  back to 2012, when the Government Accountability Office  reported on the potential for using the issuance of passports  to collect taxes. It was controversial then, but this time sailed  through, slipped into the massive highway funding bill,  passed here. The section on passports begins on page 1,113.

The joint explanatory statement is here, beginning on page 38.  The law says the State Department can revoke, deny or limit  passports for anyone the IRS certifies as having a seriously delinquent tax debt in an amount in excess of $50,000.  Administrative details  are scant. It could mean no new passport and no renewal. It could even mean  the State Department will rescind existing passports. The State Department  will evidently act when the IRS tells them, and that upsets some people. We  think of passports when traveling internationally, but some people may find  that passports are required for domestic travel in 2016. That could make the  IRS hold even more serious. The list of affected taxpayers will be compiled  by the IRS. The IRS will use a threshold of $50,000 of unpaid federal taxes.  But this $50,000 figure includes penalties and interest. And as everyone  knows, interest and penalties can add up fast. Notably, if you are contesting  a proposed tax bill administratively with the IRS or in court, that should not  count. That is not yet a tax debt. There is also an administrative exception,  allowing the State Department to issue a passport in an emergency or for  humanitarian reasons. But how that will work isn’t clear, nor is the amount  of time it will take to get special dispensation. You would still be able to  travel if your tax debt is being paid in a timely manner, as under a signed  installment agreement. The rules are not limited to criminal tax cases or where  the government thinks you are fleeing a tax debt. In fact, you could have your  passport revoked merely because you owe more than $50,000 and the IRS  has filed a notice of lien. A $50,000 tax debt including interest and penalties  is common, and the IRS files tax liens routinely. It’s the IRS way of putting  creditors on notice. The IRS can file a Notice of Federal Tax Lien after the  IRS assesses the liability, sends a Notice and Demand for Payment, and you  fail to pay in full within 10 days.

The right to travel has been recognized as fundamental, both between  states and internationally. And although some restrictions have been upheld, it  is not clear that this measure will pass the constitutional test if it is challenged.  Speaking of challenge, it is not off-topic to mention FATCA, the Foreign  Account Tax Compliance Act. FATCA penalizes foreign banks that don’t  hand over American account holders. There are approximately eight million  Americans living overseas, many of whom are still reeling from FATCA  compliance problems.

If you should have a topic that you would like me to
discuss or if you should have a question, please feel free to call
239.403.4410 or e-mail me at
mike@cctaxandaccounting.com.
An enrolled agent, licensed by the US Department
of the Treasury to represent taxpayers before the IRS
for audits, collections and appeals. To attain the enrolled agent
designation, candidates must demonstrate expertise in taxation, fulfill
continuing education credits and adhere to a stringent code of ethics.