U.S. Department of State

Revocation or Denial of U.S. Passport: More on new section 7345 (Title 26/IRC) and USCs with “Seriously Delinquent Tax Debt”

Posted on

New Section 7345 completely modifies how U.S. citizens (“USCs”) living and traveling around the world have to now consider very seriously actions taken by the Internal Revenue Service (“IRS”).  It is the IRS which now holds the power under this new law that requires the U.S. Department of State (“DOS”) to revoke or deny to issue a U.S. passport in the first place.

US Citizens Who Renounced - Chart Qtr 3 - 2015

New Section 7345(e) provides in relevant part as follows:  “upon receiving a certification described in section 7345 of the Internal Revenue Code of 1986 from the Secretary of the Treasury, the Secretary of State shall not issue a passport to any individual who has a seriously delinquent tax debt described in such section. . . ” [emphasis added].

This new law mandates (not at the discretion of the DOS) that various U.S. passports be denied at the direction of the IRS.  Once the IRS issues the certification of “seriously delinquent tax debt.”

All it takes, is for the IRS to claim tax or penalties are owing of at least US$50,000 through an assessment (plus start a lien or levy action).

Of course, US$50,000 sounds like a large sum for many modest USCs, until an individual understands that there are a host of international reporting requirements for taxpayers.  Specifically, the IRS can impose a US$10,000 penalty for each violation of failing to complete and file various IRS information forms; EVEN IF NO income IRS Form 8938 Specified Foreign Financial Assets - Highlighted Markertaxes are owing.  See IRS website – FAQs 5 and 8 regarding civil penalties (see also How is the offshore voluntary disclosure program really working? Not well for USCs and LPRs living overseas).

For a summary of these forms and filing requirements, see a prior post, Oct. 17, 2015, Part II: C’est la vie Ms. Lucienne D’Hotelle! Tax Timing Problems for Former U.S. Citizens is Nothing New – the IRS and the Courts Have Decided Similar Issues in the Past (Pre IRC Section 877A(g)(4))

Indeed, our office has seen and assisted numerous taxpayers around the world where the IRS has assessed tens of thousands, hundreds of thousands and in some cases in excess of US$1M (in proposed assessments) against an individual for failure to simply file information reporting forms.  See, for instance, a prior post on Nov. 2, 2015, Why Most U.S. Citizens Residing Overseas Haven’t a Clue about the Labyrinth of U.S. Taxation and Bank and Financial Reporting of Worldwide Income and Assets

Also, we have seen several IRS assessments of income tax (not just penalties) against individuals of hundreds of thousands of dollars which are not supported by the law.  For instance, it is not uncommon for the IRS to issue a “substitute for return” alleging income taxes owing.  See, How the IRS Can file a “Substitute for Return” for those USCs and LPRs Residing Overseas,  posted Nov. 8, 2015.  We have a number of those cases pending, where the IRS has taken erroneous information and made such assessments against USCs residing and working outside the U.S. for much if not most of their professional lives.US Passport

New Section 7345 requires that USCs, wherever they might reside, take great care in knowing about any actions the IRS might be taking against them; as to tax and penalty assessments, whether or not they are supported under the law.

One basic method of learning more about the activities of the IRS is to make a transcript request directly to the IRS regarding the status of a USC’s federal tax status according to IRS records.  See, IRM, Part 21. Customer Account Services . . . Section 3. Transcripts.

It is also possible for the USC to obtain additional tax information from the IRS through a Freedom of Information Act (“FOIA”) request.

Advertisements

Denial of U.S. Passports: President Obama and Congress Pass Law that will Require Department of State to Deny a U.S. Passport for a “Seriously Delinquent Taxpayer”

Posted on Updated on

Entry in and out of the U.S. has just gotten more problematic under a new law for those U.S. citizens who the IRS asserts owes taxes. A new statutory concept has been added to the tax law called “seriously delinquent tax debt”; which is defined by new IRC Section 7345 as a tax that has been assessed, is greater than US$50,000, and where a notice of lien has been filed or levy made.  US Passport

Prior posts have addressed current legal requirements surrounding social security numbers for U.S. federal tax compliance purposes.  See, USCs without a Social Security Number (and a Passport) “Cannot?” Travel to the U.S., posted on May 17, 2015. 

Other posts have focused on the dilemma facing U.S. citizens (USCs) who have no social security number (“SSN”).  See an older post (23 July 2014) –  Why do I have to get a Social Security Number to file a U.S. income tax return (USCs)?

The Joint Explanatory Statement of the Committee of the Conference provides the key provisions summary of the law as follows:

Present Law
The administration of passports is the responsibility of the Department of State. [“Passport Act of 1926,” 22 U.S.C. sec. 211a et seq.]  The Secretary  of State may refuse to issue or renew a passport if the applicant owes child support in excess of $2,500 or owes certain types of Federal debts. The scope of this authority does not extend to rejection or revocation of a passport on the basis of delinquent Federal taxes. Although issuance of a passport does not require a social security number or taxpayer identification number (“TIN”), the applicant is required under the Code to provide such number. Failure to provide a TIN is reported by the State Department to the Internal Revenue Service (“IRS”) and may result in a $500 fine.

***

Senate Amendment
Under the Senate Amendment, the Secretary of State is required to deny a passport (or renewal
of a passport) to a seriously delinquent taxpayer and is permitted to revoke any passport
previously issued to such person. In addition to the revocation or denial of passports to delinquent taxpayers, the Secretary of State is authorized to deny an application for a passport if the applicant fails to provide a social security number or provides an incorrect or invalid social security number. With respect to an incorrect or invalid number, the inclusion of an erroneous number is a basis for rejection of the application only if the erroneous number was provided willfully, intentionally, recklessly or negligently. Exceptions to these rules are permitted for emergency or humanitarian circumstances, including the issuance of a passport for short-term use to return to the United States by the delinquent taxpayer.
 
The provision authorizes limited sharing of information between the Secretary of State and
Secretary of the Treasury. If the Commissioner of Internal Revenue certifies to the Secretary of
the Treasury the identity of persons who have seriously delinquent Federal tax debts as defined
in this provision, the Secretary of the Treasury or his delegate is authorized to transmit such
certification to the Secretary of State for use in determining whether to issue, renew, or revoke a
passport. Applicants whose names are included on the certifications provided to the Secretary of
State are ineligible for a passport. The Secretary of State and Secretary of the Treasury are held
harmless with respect to any certification issued pursuant to this provision.

 

 

Part II: U.S. Department of State has Allowed (Starting in at least 2013) USCs to Keep their U.S. Passports After Oath and Prior to Receiving CLN

Posted on

See the first post on this topic:  U.S. Department of State has Allowed (Starting in at least 2013) USCs to Keep their U.S. Passports After Oath and Prior to Receiving CLN, Posted on March 17, 2015

A U.S. citizen is required to have a U.S. passport to enter the U.S., according to the immigration law regulations 22 CFR § 53.1 require that a U.S. citizen have a U.S. passport to enter or depart the United States.  US PassportThe relevant part of the regulations is § 53.1(a) which provides as follows:

Passport requirement; definitions.

(a) It is unlawful for a citizen of the United States, unless excepted under 22 CFR 53.2, to enter or depart, or attempt to enter or depart, the United States, without a valid U.S. passport.
 ***
These regulations were first published in 2006, and rely in part on a Presidential Executive Order made by President Bush (Jr.).  See a prior post, USCs without a . . . Passport . . . Cannot Travel to the U.S., Posted on May 17, 2015. In that post and a later post, I explained how a social security number is currently not an indispensable requirement for U.S. citizens who wish to travel to the U.S. and need to apply for a passport.
*
*
This background is relevant for U.S. citizens who take the oath of renunciation.  Previously, many U.S. embassies and U.S. Consulates around the world would physically take the U.S. passport of the individual upon taking the oath of renunciation and completing U.S. Department of State Form DS-4080.  See, a prior post, Documents to Request the Consular Officer When Renouncing U.S. Citizenship, Posted on May 28, 2014, which provides as follows:
*

The U.S. Department of State does not always provide any specific document, e.g., a certified copy of any of the following documents, after you take the oath of renunciation:

Form DS-4080, Oath of Renunciation of the Nationality of the United States. 

Not having a U.S. passport can of course be problematic if the individual needs to travel in or out of the U.S. for a period of time after taking the oath, but before receiving the CLN.  See,  The Importance of a Certificate of Loss of Nationality (“CLN”) and FATCA – Foreign Account Tax Compliance Act, Posted on June 1, 2014

Fortunately, I have been told by several Chiefs of American Citizen Services in different U.S. Consulates and U.S. Embassies that they have been advised from Washington that they are NOT required to physically take the U.S. passport, until after the issuance of the CLN.  This now seems to be consistent practice throughout the world, and most all  Chiefs of American Citizen Services use this approach, based upon my personal experience with different clients.

Will 2015 Be a Record Year for Citizenship Renunciations?

Posted on

The First Quarter of 2015 saw a large number of published names of former U.S. citizens:  1,335 total for the first quarter.

In addition, the second quarter saw a total of 460, for a Expatriates US citizens renounced chart through 2014cumulative total for the year (mid way through the year of 1,795).  At this pace, the year 2015 could be a slight record of U.S. citizenship renunciations compared to the record year of 2014.

See,  New Record of U.S. Citizens Renouncing – The New Normal

The names of each citizen can be located in the list published in the Federal Register.

There are a number of key considerations and strategic decisions that most all U.S. citizens need to consider prior to renouncing citizenship.  See, for instance –

 U.S. Citizens Overseas who Wish to Renounce without a Social Security Number will Necessarily be a “Covered Expatriate”

The “Hidden Tax” of Expatriation – Section 2801 and its “Forever Taint.”US Passport

Can the U.S. Federal Government Bar Entry into the U.S. to a U.S. Citizen without a U.S. Passport?

Global Entry, SENTRI and NEXUS after Renouncing – the “Trusted Traveler Programs” – SAFE TRAVELS!

U.S. Department of State has Allowed (Starting in at least 2013) USCs to Keep their U.S. Passports After Oath and Prior to Receiving CLN

Posted on

shutterstock_1078286Washington Post journalist, Ms. had an interesting article on March 3, 2015, titled Yes, the State Department can jump on a problem and fix it in record time.

The focus of the article was that the U.S. Department of State can indeed fix a problem (in this case how and when U.S. passports are taken from U.S. citizens who take the oath of renunciation).

The article was a bit of a surprise to me, as I have had experience with several clients where the Consulate offices have indeed allowed the U.S. citizen to physically maintain their U.S. passport after taking the Oath of Renunciation (Form DS-4080, Oath of Renunciation of the Nationality of the United States) but prior to actually receiving the  “Certificate of Loss of Nationality” (“CLN”).Certificate of Loss of Nationality of the United States, Form DS-4083 (CLN)

After a U.S. citizen has formally renounced (or relinquished) their U.S. citizenship, the U.S. Department of State provides a CLN.  This form can be located here at – Certificate of Loss of Nationality of the United States, Form DS-4083 (CLN)

You can go to the page “U.S. Department of State” under “Resources” for further U.S. Department of State Documents related to loss of nationality.

Sometimes, the U.S. Department of State will take several months to process the file in Washington D.C., before they actually issue the CLN.  I have had cases (worst case scenarios) that take upwards of 9-10 months.   See, The IRS does not give a “Certificate of Expatriation” or similar tax document . . .

However, my experience on several cases is that consular officer will generally allow tFAM foreign affairs manual 1229 re passport and CLNhe individual to physically keep the U.S. passport until the CLN is actually issued and received by the individual in exchange for their passport.  This has been the case for some 2 +/- years.

This procedure has been formalized in the Foreign Affairs Manual which added the additional key language in paragraph (4) regarding U.S. citizens who need their passport for travel to the U.S.

 

Part II: U.S. Department of State Communications to USCs overseas Regarding Tax Obligations with IRS

Posted on Updated on

A recent post discussed a rather surprising development of how the – U.S. Department of State, Starts Communicating with U.S. Citizens Overseas Regarding Tax Obligations with the IRS

There are several observations to be made about this approach.

First, some USCs living overseas will find this a welcome development, as it provides a method of Passport Inside Back Page - USC Taxation Referencebasic education of how U.S. tax laws work.  The newer U.S. passports do have an obscure reference to U.S. tax obligations of USCs.  In the past, there was generally no communications from the U.S. Department of State to USCs, including newly naturalized U.S. citizens about their U.S. tax obligations.

Second, there is much helpful information provided in the U.S. Department of State’s explanation.  The key tax forms that are most relevant for USCs and LPRs residing overseas are explained in the government e-mail.  See,  USCs and LPRs Living Outside the U.S. – Key Tax and BSA Forms

All of the following forms are identified by the U.S. Department of State:

These are the most relevant forms for the majority of USCs and LPRs;  although there are numerous other forms and calculations that may be required depending upon the particular circumstances, income, assets, employment, etc. for each individualUS Passport

The third observation, relates to how employees of the U.S. Department of State will use this information and communicate with USCs?  Will they begin asking (even if infrequently) whether a U.S. citizen overseas is in compliance with their U.S. federal tax requirements?  What are the consequences to the U.S. citizen if they state yes, no or refuse to answer?  What can happen to an individual if they provide a false statement to a federal employee or file a false document?  See What could be the focal point of IRS Criminal Investigations of Former U.S. Citizens and Lawful Permanent Residents?

The fourth and last observation, is whether the IRS will begin providing USC taxpayer information on a regular basis to the U.S. Department of State?  The law provides limitations upon how  the IRS can disclose and provide taxpayer information.  See,  26 U.S. Code § 6103 – Confidentiality and disclosure of returns and return information

However, there are significant exceptions in the law, that do allow disclosure of taxpayer financial and taxpayer information to other agencies (particularly “Intelligence Agencies,” which presumably includes the U.S. Department of State).  See, for instance, IRC Section 6103(i)(7).  The statutory requirements of 6103(i)(7) are not particularly rigid.