Americans who owe taxes may lose passport.
Congress has passed a new law which gives the IRS the power to revoke your passport if you have not been paying your taxes. This is the first law of its sort, and now people who are delinquent on their taxes will have their right to travel abroad threatened. And for those who are already living abroad, they may no longer have the right to visit their family in the states.
This new provision adds the additional penalty of the revocation of a passport in addition to the previous penalty of taking extra money of delinquent taxpayers through interest and penalties. While it sounds harsh, there are limitations on who is eligible for this new punishment. The taxpayer must owe more than $50,000 to the IRS to fall into the category of taxpayer who could potentially lose their passport. While this amount may seem high enough to keep you off the IRS’s radar, last year the IRS reported 12.4 million accounts that owed 131 billion to the IRS in 2014 alone. In addition, the 50,000 dollar amount includes penalties and interest. This means that a taxpayer may have owed much less to the IRS in actual taxes, but due to the penalties and interest, the total owed amount has grown to meet the threshold to passport revocation.
If you are already in the hole, and you owe money to the IRS, the best course of action is to pay your taxes as soon as possible. The IRS assesses interest which compounds over time. This means that the actual taxes which were due can be only a portion of the total taxes owed due to penalties and the interest which compounds over time. If you are unable to afford to pay your tax bill at the moment, then the IRS is able to help delinquent taxpayers set up a payment plan. This will allow the taxpayer to pay his bill over time, before the IRS garnishes wages or levies property. If you are aware that you owe a large amount to the IRS and are unable to pay, it is best to seek a tax professional who can advise on how to proceed to reduce the total tax bill.
There are a few ways to owe more than 50,000 dollars and avoid the fear that the IRS will revoke your passport. Firstly, the IRS must put a lien or levy on your property to be eligible for passport revocation. If you have not received a lien or levy then you do not need to worry about your passport being revoked. Next, if you have already worked out a payment plan with the IRS and you are paying it properly, then you are not eligible. Thirdly, if you are in the process of contesting your debts in tax court or actively disputing a case with the IRS, then you are not eligible to have your passport revoked.
This new law, which hits those living abroad the hardest, comes as many Americans living abroad are already dealing with the burden of FATCA, Foreign Account Tax Compliance Act. FATCA, requires Americans to report their foreign financial assets at the same time as it requires foreign banks to report American clients. While many Americans are adjusting the requirements under FATCA, this new law is seen as too cruel for American expats who may lose their right to travel home.
About the Author:
Joshua Katz, CPA is the founder of Universal Tax Professionals, a US expat tax firm dedicated to helping Americans living abroad with all their tax and accounting needs. Joshua can be contacted directly at firstname.lastname@example.org.