Tag Archives: IRS OIC

Can The IRS Revoke My Passport?

Don’t want to pay your taxes ehh? We’ll get your attention!

So the short answer to the question is yes, the IRS can revoke your passport if you have a “seriously delinquent” tax debt.  But what exactly does that mean?  More importantly, what can you do if your passport is at risk of being revoked?  Read on to learn more my friend!

Background
On December 4, 2015, President Obama signed the Fixing America’s Surface Transportation (FAST) Act (Pub. L. No. 114-94) into law—the first federal law in over a decade to provide long-term funding certainty for surface transportation infrastructure planning and investment.  But like all legislative bills/acts, other things that may appear unrelated often get inserted into them.  This act was no different.

Internal Revenue Code Sec. 7345 was enacted as part of the FAST Act.  A seriously delinquent tax debt is defined as an unpaid, legally enforceable, and assessed federal tax liability greater than $51,000 (adjusted annually for inflation) and for which:

  • The IRS has filed a notice of federal tax lien and the individual’s right to a hearing has been exhausted or lapsed, or
  • The IRS has issued a levy.

Generally speaking a federal tax debt is the sum of all current tax obligations, including penalties and interest.  However, a “seriously delinquent tax debt” does not include any of the following tax debt even if it meets the criteria stated above:

  • Being paid timely with an IRS-approved installment agreement (IA),
  • Being paid timely with an offer in compromise (OIC) accepted by the IRS, or a settlement agreement entered with the Justice Department,
  • For which a collection due process hearing is timely requested regarding a levy to collect the debt,
  • For which collection has been suspended because a request for innocent spouse relief under IRC § 6015 has been made

Furthermore, a passport won’t be at risk under this program for any taxpayer:

  • Who is in bankruptcy
  • Who is identified by the IRS as a victim of tax-related identity theft
  • Whose account the IRS has determined is currently not collectible (CNC) due to hardship
  • Who is located within a federally declared disaster area
  • Who has a request pending with the IRS for an installment agreement (IA)
  • Who has a pending offer in compromise (OIC) with the IRS
  • Who has an IRS accepted adjustment that will satisfy the debt in full

What the IRS does when you have a seriously delinquent tax debt
The IRS is required to notify you in writing at the time the IRS certifies seriously delinquent tax debt to the State Department. This is done via IRS notice CP 508C.  If you have been certified to the Department of State by the Secretary of the Treasury as having a seriously delinquent tax debt, you cannot be issued a U.S. passport and your current U.S. passport may be revoked.

How do you resolve the situation?
The IRS will reverse a certification when the tax debt no longer qualifies as a seriously delinquent tax debt.  This happens when:

    • The tax debt is fully satisfied or becomes legally unenforceable.
    • The tax debt is no longer seriously delinquent meaning:
      1. You and the IRS enter into an installment agreement allowing you to pay the debt over time.
      2. The IRS accepts an offer in compromise to satisfy the debt.
      3. The Justice Department enters into a settlement agreement to satisfy the debt.
      4. Collection is suspended because you request innocent spouse relief under IRC § 6015.
      5. You make a timely request for a collection due process hearing regarding a levy to collect the debt.
    • The certification is erroneous.

The IRS will make this reversal within 30 days and provide notification to the State Department as soon as practicable.

The IRS will not reverse certification where a taxpayer requests a collection due process hearing or innocent spouse relief on a debt that is not the basis of the certification.  Also, the IRS will not reverse the certification because the taxpayer pays the debt below $50,000.  So…if you have been notified that your tax debt has been certified, you should consider:

  1. paying the tax owed in full,
  2. entering into an installment agreement, or
  3. making an offer in compromise.

But what if the IRS made an error?
The State Department is held harmless in these matters and cannot be sued for any erroneous notification or failed decertification under IRC § 7345.  If you believe that the IRS certified your debt to the State Department in error, you can file suit in the U.S. Tax Court or a U.S. District Court to have the court determine whether the certification is erroneous or the IRS failed to reverse the certification when it was required to do so. If the court determines the certification is erroneous or should be reversed, it can order the IRS to notify the State Department that the certification was in error.

Can I contact the State Department to find out the status of my passport?
The State Department does not have any information about your seriously delinquent tax debt. For questions, or to resolve your seriously delinquent tax debt, they recommend that you contact the IRS via phone at 1-855-519-4965 (1-267-941-1004 international) of via mail at:

Department of the Treasury
Internal Revenue Service
Attn: Passport
PO Box 8208
Philadelphia, PA 19101-8208

How can we help?
As you can tell from above, the IRS will only really reverse the certification if the debt is no longer enforceable (i.e. collectable) or if you enter into a resolution option (i.e. payment plan, currently not collectible, etc).

With regards to enforceability, the IRS only has 10 years from the date of assessment to collect on unpaid taxes.  If you are getting letters, your debt is more than likely still active.  But do you know when it will expire?  This is called the CSED date.

While you could go through the hassle of calculating your CSED (see this blog post), do you really want to?  For a flat $75 fee, and us filing a few forms with the IRS (with your consent), we’ll look at however many years you want to analyze, and provide you with a comprehensive report that will include:

  • Total tax assessment, penalty, interest and accrual amounts for each year (so you know how much you really owe)
  • CSED calculations for each year requested (i.e. when your debt will expire)
  • Tolling events (if any) and the days your CSED has been extended
  • All IRS notices sent/received for each year
  • IRS account activity by year
  • And much, much more (we promise)

If your debt will not expire for some time, we are fully authorized to represent your before the IRS and can can help negotiate a resolution option (i.e. IA, OIC, CNC) that will satisfy the IRS conditions to have your certification revoked/lifted.  You can learn more about our representation services by visiting the IRS Debt Representation page or reading the IRS Talk post within our blog.

When you are ready to get started, simply call us at (773) 239-8850 or click our email address at the bottom of this screen.

10 Options For Solving Your IRS Debt

When it comes to settling your tax debt, there are 10 options “commonly” employed by resolution professionals (such as ourselves) or the individual taxpayer (see full explanations below):

»          Full pay the tax owed
»          File unfiled returns to replace Substitute for Returns (SFR’s)
»          Dispute the tax on technical grounds
»          Currently Not Collectable
»          Installment Agreements
»          Offers In Compromise
»          Penalty Abatement
»          Discharging taxes in bankruptcy
»          Innocent Spouse relief
»          Expiration of the Collection Statute

OPTION ONE – Full pay the tax owed
While seldom a popular option, sometimes the taxpayer does have the ability to pay the tax outright or borrow against an existing asset e.g. refinance a home mortgage or take out a home equity loan.

Surprisingly, in this situation, this option is usually the least costly of viable options available to the taxpayer. The reason for this is two-fold:
»         The taxpayer’s equity in assets will usually disqualify the taxpayer from benefiting from options which grant debt forgiveness.
»         Until the tax debt is paid in its entirety, it will continue to accrue additional penalties and interest.

OPTION TWO – Filing unfiled tax returns and replacing Substitute for Returns
When resolving a tax problem, it is relatively common to find that the taxpayer has back tax returns which have not been filed. There are three reasons why it is necessary to file the required back tax returns and get the taxpayer “Current” so to speak:
»         Failure to file tax returns may be construed as a criminal act by the IRS and can be punishable by one year in jail for each year not filed. Filing unfiled returns brings the taxpayer “Current”
»          Filing unfiled returns to replace “Substitute for Returns” may lower the tax liability owed and the associated interest and penalties
»          A settlement cannot be negotiated with the IRS until the taxpayer becomes “Current”

OPTION THREE – Dispute the tax on technical grounds
If there is a technical basis to dispute the amount of tax owed, there are a number of paths to consider, including:
»         Filing an amended return if the statute of limitations to file has not expired
»         Filing an Offer In Compromise – Doubt as to Liability

OPTION FOUR – Currently Not Collectable Status
If a taxpayer does not have positive cash flow above the level to pay their necessary living expenses or have equity in assets to liquidate, the taxpayer may qualify for Currently Not Collectable Status (CNC). This is most commonly seen when the tax payer is unemployed or underemployed. In this situation, the IRS places a temporary hold on the collection of the tax owed until the taxpayer’s financial situation improves. If over a longer period of time, the tax payer’s financial situation does not improve, the taxpayer may then become a viable Offer In Compromise candidate.

OPTION FIVE – Installment Agreements
In most cases, the IRS will accept some type of payment arrangement for past due taxes. In order to qualify for a payment plan the taxpayer must meet set criteria. They include:
»          The taxpayer must be current- all returns must be filed
»          Disclose all assets owned
»          The difference between the taxpayer’s monthly income and allowable monthly expenses will be the amount that the IRS will request that the taxpayer pay on a monthly basis
»          Monthly payments will continue until the taxes owed are paid in full

OPTION SIX – Offers In Compromise
The IRS Offer in Compromise program provides taxpayers that owe the IRS more than they could ever afford to pay, the opportunity to pay a small amount as a full and final settlement.

»          This program also allows taxpayers that do not agree that they owe the tax or feel that the tax has been incorrectly calculated, a chance to file an Offer in Compromise and have their tax liabilities reconsidered.
»          The Offer in Compromise program allows taxpayers to get a fresh start.
»          All back tax liabilities are settled with the amount of the Offer In Compromise.
»          All federal tax liens are released upon IRS acceptance of an Offer In Compromise and payment of the amount offered.

An Offer in Compromise filed based on the taxpayers inability to pay the IRS looks at the taxpayer’s current financial position and considers the taxpayers ability to pay as well as the taxpayers equity in assets. Based on these factors, an Offer amount is determined.

»          Taxpayers can compromise all types of IRS taxes, penalties and interest.
»          Even payroll taxes can be compromised.

If the taxpayer qualifies for the Offer In Compromise program, they may be able save thousands of dollars in taxes, penalties and interest.

OPTION SEVEN – Penalty Abatement
In most cases, penalties make up 10-30% of the total tax obligation. A penalty abatement request can eliminate some or all penalties if the taxpayer has reasonable cause for not paying the tax on time or paying the appropriate amount of tax.

Reasonable cause includes:
»         Prolonged unemployment
»         Business failure
»         Major illness
»         Incorrect accounting advice
»         Incorrect advice from the IRS

To prevail in a penalty abatement request, as in most tax matters, the burden rests with the taxpayer to be able to adequately document the reasonable cause.

OPTION EIGHT – Discharging Taxes in Bankruptcy
Bankruptcy can discharge federal income taxes if certain requirements are met. However this depends upon both the type of bankruptcy and the type of tax owed.

Chapter 7 is the chapter of bankruptcy law that provides for the liquidation of non-exempt assets and the discharge of dischargeable debts. Chapter 11 and Chapter 13 provide for repayment of debt in whole or in part.

To discharge taxes in bankruptcy, a number of criteria must be met including:
»         36 months have expired from the tax return due date
»         24 months have expired from the date the tax was assessed
»         240 days have passed since the tax was assessed and filing bankruptcy
»         All tax returns must have been filed

OPTION NINE – Innocent Spouse relief
Sometimes a taxpayer will find themselves in trouble with the IRS because of their spouse’s or Ex-spouse’s actions. The IRS realizes that these situations do in fact occur.

In order to help taxpayers that have tax problems which are due to the actions of their spouse, the IRS has developed guidelines for taxpayers to qualify as an innocent spouse. If a taxpayer can prove they meet these guidelines, then the innocent taxpayer may not have to pay some or all the taxes caused by their spouse or ex-spouse.

OPTION TEN – Expiration of the Collection Statute
The IRS has 10 years from the date of assessment (usually close to the filing date) to collect all taxes, penalties and interest from the taxpayer. The taxpayer does not owe the tax after the 10-year date has passed.

Listed below are some of the most common exceptions to this rule:
»          If the taxpayer agrees in writing to allow the IRS more time to collect the tax
»          If the taxpayer files bankruptcy during the 10 year period
»          If the taxpayer files an Offer In Compromise.