Effective January 1, 2016, a "seriously delinquent tax debt" may result in the loss of a U.S. passport.
There are currently several grounds upon which the Department of State ("DOS") may revoke or deny the issuance of a passport. For example, a passport may not be issued to an individual who: is in default on a repatriation loan; is in arrears of child support in a certain amount; is subject of an outstanding federal warrant of arrest; or has obtained the passport illegally or fraudulently. See 22 C.F.R. 51.60-62.
On December 4, 2015, the President signed into law the Fixing America's Surface Transportation Act ("FAST Act") in which a new code section is created - Internal Revenue Code ("IRC") Section 7345 which provides the first and only tax-related grounds for revocation or denial of a U.S. passport.
The provision authorizes the Internal Revenue Service to disclose information evidencing a "seriously delinquent tax debt" to the DOS, who may then use that information as grounds for denying, revoking or limiting the use of a passport. Under the provision, a "seriously delinquent tax debt" is defined as an assessed tax debt exceeding $50,000 and for which a notice of lien has been filed under IRC Section 6323. Exceptions include tax debt for which an installment payment plan is agreed to, or when a due process collection hearing or a claim for innocent spouse relief is pending. The $50,000 figure will be adjusted for inflation after 2016.
This new law leverages one of the many benefits of U.S. nationality (i.e. a passport for ease of travel) against one of a passport holders' many responsibilities (i.e. the duty to pay taxes). While it may effectively confine those U.S. passport holders who are in serious tax delinquency status to U.S. soil, the question of what impact such a law will have on those living abroad remains open. For example, it is unclear what documentation such citizens can use to return to the U.S. in the event that their passport is revoked.
Under Immigration and Nationality Act Section 360(a), a U.S. national living within the U.S. may bring a declaratory judgment if the DOS refuses to issue a passport. That right has not yet been extended to those living abroad. Although the consequences of the new law remain to be seen, it is anticipated that the DOS will issue new guidelines in 2016 which will further interpret and expand the provision.
Barclay Damon has decades of experience assisting Canadian clients with their U.S. legal needs in a wide range of areas, including corporate law, mergers and acquisitions, and securities; immigration; intellectual property; international business; estate planning; tax (federal, state, and local); energy; nonprofit foundations; and banking and finance. Firm-wide, our 275 attorneys provide clients with access to advice on virtually any legal area they may require. If you require further information regarding the information presented in this Legal Alert and its impact on your organization, please contact any member of the Immigration or International Business Practice Areas.