Alongside the face-off in the courts over Donald Trump’s executive order banning travel from some Muslim countries is a threat to snatch back passports of tax avoiders.
Tax code Section 7345 or Revocation or Denial of Passport in Case of Certain Tax Delinquencies is a new tool for the Internal Revenue Service (IRS) to collect taxes.
The intention is to stop taxpayers owing more than $50,000 from travelling until they pay up or arrange to settle their bills.
This stealth legislation was signed off by former President Barack Obama last year, but has only just surfaced as a threat to US expats who may face tax bills under Foreign Account Tax Compliance Act (FATCA).
FATCA requires foreign financial institutions to report the cash and investments held overseas by US taxpayers.
How the IRS can cancel a passport
The concern for US expats is although they live overseas, their passport can be revoked without notice if they have a sizeable tax debt.
The IRS has worked on this for a while, but the details of how the process works have only just been published online.
The procedure is simple – if a taxpayer owes $50,000 or more in tax, the IRS certifies the details to the State Department. The tax debt can include penalties and interest.
On notification, the State Department will cancel the taxpayer’s passport and will not issue a new one until the IRS confirms the debt is cleared.
If the taxpayer is overseas, the State Department will still revoke the passport, but may allow travel back to the USA.
First notifications ready to go
On certification of a tax debt, the State Department issues no warning of passport cancellation nor any grace period.
“The IRS has not yet started certifying tax debt to the State Department. Certifications to the State Department will begin in early 2017, and this webpage will be updated to indicate when this process has been implemented,” says the IRS web site.
“The IRS can certify a seriously delinquent tax debt to the State Department. The department generally will not issue or renew a passport to them after receiving certification from the IRS.
“On receiving certification, the State Department may revoke a passport. If the department decides to revoke, prior to revocation, the department may limit the passport to return travel to the US.”