True or False?

If a taxpayer owes a significant amount of money in taxes, the State Department can revoke a current passport or deny a passport application.

True, but it’s not that simple.

Seriously Delinquent Debt

The tax debt must be considered seriously delinquent, that is, totaling more than $52,000 including interest and penalties. Additionally, at least one of the following must occur in connection with that debt:

  • A notice of a federal tax lien was filed
  • IRS levy was issued

If the debt you owe falls under this category, the IRS is required to notify you in writing at the time the State get department is notified of the seriously delinquent debt.

But fear not! If you find yourself in this predicament, you still have a chance to apply for a passport. The State department holds the passport application for 90 days, providing you with sufficient time to either pay off the debt, resolve any errors, or enter into a payment agreement with the IRS. When the debt is either paid off or no longer considered seriously delinquent, the IRS will reverse the certification within 30 days. During that time period both the taxpayer and the State Department are notified.

The Exception

Some debts, such as FBAR penalties and child support do not fall under this category. Furthermore, a debt is not considered seriously delinquent if:

  • It is being paid with an IRS-approved installment agreement.
  • It is being payed with an IRS-approved offer in compromise.
  • A collection due process hearing for a levy is requested.
  • A collection as been suspended because of a request for insect spouse relief.
  • The taxpayer is bankrupt.
  • The IRS identifies a taxpayer as a victim of identity theft.
  • The IRS considers a taxpayer’s account not collectible due to hardship.
  • The taxpayer lives in a federally declared disaster area.
  • The taxpayer has a request pending with the IRS for an installment agreement.
  • The taxpayer has a pending offer in compromise with the IRS.
  • The taxpayer has an IRS-accepted adjustment that will satisfy the debt in full.

Although this is a rarity amongst most U.S. taxpayers, it’s beneficial to familiarize yourself with these practices to prevent such a situation from happening to you. The best way to avoid significant tax debt, though, involves tax planning. To find out more on how tax planning could help you save thousands of dollars in taxes, click here.