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Pay Your U.S. Taxes…Or Lose Your Passport? – What This Means for Americans Abroad


​​​It is now officially possible to lose your U.S. passport for failing to pay your U.S. taxes. Or even if you forget to file forms.

The big picture: If you owe the IRS more than US$50,000, the IRS can now stop you from getting a passport or get the one you have revoked.

Why Americans abroad are especially vulnerable: The $50,000 includes not just tax, but also penalties and interest. For Americans abroad, the penalty to file a single form often starts at $10,000. So even people who owe no tax can reach this threshold pretty quickly.

The sneaky part: If you file a return without a Social Security Number (or intentionally use a wrong one), that's also enough to lose the passport.

There are many Americans abroad who don't have U.S. SSNs. For someone in Canada to get one, it is necessary to travel to a U.S. Social Security office. That's not always easy or cheap. For Americans in other countries, it can be even more challenging.

 This penalty is not completely new: Previously, you could lose your passport if you owed over $2,500 of child support or certain other federal debts, but not tax.

How it works: The IRS doesn't control passports; that's the job of the State Department. In general, the IRS is not allowed to share a taxpayer's information with other branches of government, but there are exceptions and this is yet another one. The IRS can now inform State of a "seriously delinquent taxpayer" and request that his passport be revoked or that he not be issued a new one. State must honour this request.

The devil is in the details: The target of this measure is the "seriously delinquent taxpayer", meaning someone who owes the IRS at least $50,000 (indexed for inflation) and has had a tax lien or notice of levy issued against him by the IRS.

If you are contesting the amount you owe (and you are doing so within the rules), this penalty cannot be used – at least until your case is resolved.

If you are paying your debt over time, pursuant to an installment agreement or offer-in-compromise, or collection actions is suspended because of a due-process hearing or innocent spouse relief request, you are not at risk.

So you're not vulnerable the moment you owe the tax, but only after the IRS gets angry that you haven't paid. The IRS collection process is described here.

If the IRS does instruct State to revoke or deny issuance of a passport, it must notify the taxpayer as well. And if the circumstances change (say, the amount is found not to be owing or the bill is paid), it must reverse the certification and notify State and the taxpayer as well.

Exception: The rules allow the retention / issuance of a passport for emergency or humanitarian circumstances, including short-term use solely to return to the United States. For a U.S. citizen to enter the United States legally, he must have a U.S. passport. It would be unspeakably Kafkaesque to withdraw the passport of a citizen abroad and effectively ban a person from coming back to argue the case.

More sneakiness: Interestingly, this isn't even part of a tax bill. It was inserted into a highway bill – the Fixing America's Surface Transportation (FAST) Act (HR 22). This provision is designed to raise some revenue to help pay for the highway improvements (spoiler alert: It doesn't raise much). The full text is here, and the explanatory statement is here.

To learn more about your U.S. tax obligations, contact Kevyn Nightingale, CPA, CA, CPA (Illinois), TEP, Tax Advisor, at 416.515.3881 or [email protected], or your local MNP Tax Advisor.