American passport holders now have another reason to get their tax affairs in order. New IRS Code § 7345 was added with the passing of the “FAST Act” or Fixing America’s Surface Transportation Act. A goliath of a law, the new tax collection provisions are not mentioned until page 1,113 of the Act.
Briefly, the Act allows the State Department to revoke, deny or suspend a U.S. passport for anyone the IRS certifies as having a seriously delinquent tax debt. Currently, that amount is over $50,000, including penalties and interest. Since interest compounds daily on the tax, penalty and interest, the amount due can creep up quickly.
The new law applies to Americans living and working abroad as well. There are still many administrative details to be worked out and regulations to be issued to answer procedural issues. Taxpayers with installment agreements or pending offers in compromise would generally not be subject to the provisions.
For U.S. passport holders living and/or working overseas, getting U.S. tax compliant and ensuring communications with the IRS is critical. A U.S. based power of attorney can help in this regard. A suspended passport can prevent simple acts like flying between overseas countries, opening a bank account and in some circumstances, even getting a hotel room. If a valid passport is a condition of your employment, the stakes are really high.
The simple take away is that the U.S. is serious about collecting tax debts and U.S. passport holders traveling internationally are on the frontline.
Further updates will be forthcoming as guidance is published.