How US expats that owe back taxes to the IRS can avoid losing their passport | Ingleton Partners
Tom LR Griffiths is a tax advisor and consultant, specialising in US expatriate tax matters
Tom LR Griffiths
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Are you a US expat and owe back taxes to the IRS? Tom LR Griffiths explains how to avoid losing your passport

Are you a US expat and owe back taxes to the IRS? Tom LR Griffiths explains how to avoid losing your passport

The US Federal Government tax legislation is some of the most complex in the world. And at its core is a determination to find US citizens that owe back tax taxes to the IRS.

All US citizens and Green card holders must file a federal tax return every year. It doesn’t matter if you’re a US expat who has lived in the UK for 20 years, you are still legally obliged to file a tax return. There are various mechanisms you can use to ensure you are not paying ‘double tax’ to both countries.

What happens if you owe back taxes to the IRS?

But, as with all US tax issues, the onus is on you to ensure you are compliant, up-to-date and don’t owe taxes to the US Government. And now the IRS is stepping up the pressure on those who owe more than $52,000 by revoking passports.

US expats and citizens living in the States or overseas that owe more than $52,000 in taxes could have their passport revoked. The IRS has been saying it could revoke US passports from US citizens that owe tax since the Fixing America’s Surface Transportation (FAST) Act was introduced in February 2018.

Between February 2018 and August 2019, the IRS has contacted more than 400,000 US taxpayers to tell them their passports are at risk. They may have their existing passport revoked, or not be able to obtain a new one.

IRS reports information to the State Department

According to an IRS spokesperson, Cecilia Barreda, in an interview with CNBC, the State Department and the IRS are now fast-tracking enforcement of the FAST Act. When the ACT was introduced the threshold was $51,000. The increase is likely to be tied to inflation, but there is no direct confirmation of that from the IRS.

So far, the Act has worked on applications by taxpayers for new passports, or applications for renewal. However, the IRS is now actively referring unsolved tax cases directly to the State Department. The State Department will then consider revoking the citizen’s passport.

The State Department can only revoke or deny passports based on information it receives from the IRS. The tax department says that the amount of owed tax ($52,000 or more) must represent federal tax debt that is legally enforceable.

What does a CP508C Notice mean?

If you are a US expat and owe more than $52,000 in tax to the IRS, you will receive a CP508C Notice. This notice means that under the IRS Code Section 7345, your tax status is “seriously delinquent” and your details have already been sent to the State Department, and you will have your passport limited or revoked.

The notice gives all the details of what you need to do, including how much you owe and how you can become compliant in order to retain your passport. There are various ways you can make a payment of the tax you owe. However, tax issues are always more complex for US expats living and working abroad. We would always advise engaging a professional like Ingleton Partners, to guide you through the process of becoming compliant. We can also help you manage your tax into the future, so your passport isn’t threatened again.

How to stop your passport being revoked

When the tax debt is either paid off or is considered legally unenforceable, this notice will be reversed by the IRS. If you can’t pay the entire amount of money that is outstanding, there are various routes you can take:

  1. Enter into a formal arrangement with the IRS to pay by instalments.
  2. Make an offer in compromise to satisfy the tax debt.
  3. The Justice Department can make a settlement agreement with the IRS.
  4. Request innocent spouse relief under IRS Code Section 6015.
  5. If you’ve already paid or don’t agree you owe the tax, send proof of payment to the address printed on the Notice.

When the tax issue is considered resolved by the IRS, they will reverse the Notice within 30 days. They also notify the State Department directly.

What about US expats living in other countries?

If you’re a US expat living overseas and the State Department revokes your passport, you can still return to the US. Under IRC Section 2714(e) (2)(B), the State Department can either issue you with a limited passport that only allows you to return the US or limit your existing passport so that you can only return to the US.

The IRS issued a press release in September 2019 to reaffirm its commitment to chasing delinquent taxpayers. Barreda says: “Our goal was to remind people that this programme has been in operation but additionally that it is our intention to begin referring cases to the US Department of State for passport revocation.”

From the Notices issued so far, the IRS has clocked up $11.5 million (by the end of June 2018) from 220 individual taxpayers. A further 1,400 individuals have since entered into payment agreements with the IRS. Figures more recent than July 2018 are not available from the IRS.

The message is clear: if you are a US expat with a tax debt, you must contact the IRS immediately to avoid losing your passport. For help, contact Ingleton Partners.