A few weeks back, our blog began discussing how the Fixing America’s Surface Transportation Act of 2015 contained a little known provision calling upon the IRS to begin working with the State Department to revoke, deny or otherwise limit the ability of individuals with “seriously delinquent tax debt” to use passports.
Indeed, this interagency initiative is scheduled to take effect next month, affecting those individuals possessing passports or looking to secure passports who have a legally enforceable tax debt of more than $50,000, and who have seen either a levy issued or a lien filed by the IRS.
Questions have naturally arisen as to whether certain individuals with delinquent tax debt can be considered exempt from these passport restrictions.
The good news is that there are scenarios in which seriously indebted taxpayers will be considered exempt from these new passport restrictions, as they are considered to be in good standing with the IRS.
Offers in compromise
If an individual has settled their tax debt with the IRS via an offer in compromise, meaning an arrangement between the agency and the taxpayer to settle an outstanding tax debt for less than the amount owed, he or she will be exempt from passport restrictions.
It’s important to remember, however, that taxpayers looking to avail themselves of this option must submit an offer that the IRS believes reflects their true ability to pay and which also meets certain demanding criteria. Indeed, only about 40 percent of offers in compromise submitted in 2015 were approved by the IRS.
Installment agreements
If an individual has settled their tax debt with the IRS via an installment agreement, meaning an arrangement to pay the amount owed via a serious of regular payments, he or she will be exempt from passport restrictions. This is a favored avenue of resolution for the IRS, as it established nearly 3 million installment agreements in 2015 alone.
Experts indicate, however, that taxpayers should be aware that it is still unclear whether different forms of payment agreements, including currently not collectible (CNC) status, extension-to-pay agreements or partial-pay installment agreements would qualify as exemptions.
Other scenarios in which taxpayers are exempt from the passport restrictions include appealing the issuance of a levy via a collection due process hearing or requesting innocent spouse relief.
We’ll continue discussing passport restrictions in a future post. If you have questions or concerns relating to tax debt or other tax-related matters as soon as possible consider speaking with a skilled legal professional.