A law enacted in 2015 is only now being enforced by the IRS. As the Service announces in Notice 2018.01, unpaid taxes can in certain situations negatively affect one’s ability to obtain or renew a passport. Tax lawyer Rob Wood discusses the law and offers some helpful advice. He also discusses the law in his article, “How Overdue Taxes Can Jeopardize Passports.”
Wood notes that controversial law was enacted several years ago, but the IRS and the State Department are only now enforcing it. The law provides for the IRS to certify to the State Department that a taxpayer is “seriously delinquent” in the payment of taxes. The threshold for serious delinquency is set out in the statute as being more than $50,000. But, as Wood points out, the $50,000 doesn’t have to be entirely taxes. It can include penalties and interest.
It is important, Wood says, for taxpayers who are disputing a tax bill with the IRS to stay on top of the situation. Someone needs to stay on “the procedural aspect” of the dispute by responding to notices from the IRS, disputing what can be disputed, and staying on time. “There are timing deadlines to just about everything with the IRS.” Once a notice is received, a taxpayer has a variety of steps to go through to keep the dispute within bounds and avoid an adverse determination based on violation of procedures.
For people who find themselves in the “seriously delinquent” category with the IRS, Wood recommends that they immediately contact a tax adviser, either a CPA or a tax lawyer. How serious the situation is will depend on where a taxpayer is in the process with the IRS. A big problem, Wood says, is that very often, people who are in trouble with the IRS have been unable to respond properly so that adverse determinations may already be final and not subject to dispute.
But even then, Wood notes, there are things that can be done. “For example, try to get a deal with the IRS, something called an offer in compromise.” The idea is to show the IRS your situation and try to negotiate a payment of a lesser amount, perhaps fifty cents on the dollar. Another option would be an installment arrangement, which is probably easier to get. A taxpayer who gets this arrangement and stays on track with the installment payments will avoid the “seriously delinquent” certification.
A taxpayer may be in the “seriously delinquent” situation but feel that a mistake has been made by the IRS. Wood says that there is a process, though not an easy one, to contest the delinquency determination. The process is described on the IRS’s website.
Robert W. Wood is the Managing Partner of Wood LLP, San Francisco. Often listed among the best tax lawyers in America, Wood has broad experience in corporate, partnership and individual tax matters. Concerning the tax treatment of litigation settlements and judgments, he is perhaps the preeminent tax lawyer in the United States. He is also an authority on merger and acquisition tax matters, tax opinions, offshore account and entity disclosures, and many types of tax controversies. The Legal Broadcast Network is a featured network of Sequence Media Group.