The Internal Revenue Service has acted quickly this year to work with the U.S. State Department to revoke or deny renewal of passports of almost a half million people who are alleged to owe taxes to the US government. This often affects people who run international businesses (whose earnings will decline without a passport) or even possibly ‘ordinary’ people who suffer the worst consequences of a divorce (who might not be able to take a short tropical vacation). It is possible, for example, that something as innocent as a botched retirement plan rollover during a divorce could trigger early taxes that when combined with penalties and interest, could exceed the $51,000 total tax obligation threshold that triggers the passport restriction.
Internal Revenue Code section 7345 authorizes our government to take this action but it was seldom used before this year. At the beginning of this year less than 1,000 people were affected by this law. By the end of April 2018 more than 436,000 taxpayers were identified for passport denial or revocation. The IRS says that the number of people restricted from international travel is growing by 5% to 10% each month. Details of the program are included in IRS Revenue Bulletin 2018-1.
Taxpayer advocates have already expressed concerns that the IRS does not fully inform taxpayers of their rights when revoking or denying passports.
In my practice, I find that some individuals accused of owing taxes do not really have this obligation, or that the amount claimed by the government is often far more than they actually owe. But unless these individuals take action, hire a professional tax representative, and commit to a plan to resolve this problem then they could find themselves unable to travel into or out of the United States. Ignoring IRS notices is never a good idea.
The good news is that this problem is almost always easily fixed. A tax professional can help evaluate the tax claims, renegotiate them to an appropriate amount and set up a payment plan that works within your budget.
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