Yesterday the Taxpayer Advocate published a blog post entitled “The IRS’s New Passport Program: Why Notice to Taxpayers Matters (Part 1 of 2)” which criticizes the Internal Revenue Service’s planned initiative to revoke, or deny, passports of individuals who have substantial tax liabilities. We have previously covered the planned rollout of this program by the IRS here and here. In our last article on this subject, we reported — based on information contained on the IRS website — that the IRS planned to begin issuing certifications of individuals with “seriously delinquent tax debt” to the State Department in “early 2017.” According to the IRS web page addressing the passport revocation program – which was last updated on June 2, 2017 – certifications to the State Department have in fact not yet started, but are slated to begin at some point “in 2017.” According to the Taxpayer Advocate, “there is no firm date for implementation” of the passport revocation/denial program at this time, although the IRS plans to publish a notice providing more details about the program shortly before implementation.
The passport revocation provision was enacted into law in December 2015 as part of the Fixing America’s Surface Transportation Act (FAST Act), which contained two controversial measures designed to assist the IRS in collecting delinquent taxes: (1) re-authorizing the use of private collection agencies for certain delinquent tax accounts; and (2) authorizing the State Department to revoke, or deny, passports to taxpayers with “seriously delinquent tax debt.”
“Seriously delinquent tax debt” is defined as a federal tax liability that been assessed and is greater than $50,000 (including interest and penalties), and for which the IRS has either filed a lien or levy. The dollar threshold will be adjusted for inflation every year. Taxpayers who have entered into installment agreements or offers-in-compromise, or have requested collection due process hearings or innocent spouse relief, are not considered to have “seriously delinquent tax debt” even if they owe the IRS more than $50,000.
In the blog post, the Taxpayer Advocate notes prior efforts by the U.S. government to restrict issuance of passports to individuals with other types of non-tax debt:
The concept of restricting a person’s travel to incentivize behavior isn’t new. In 1996, Congress passed the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) of 1996, which requires the DOS to deny a passport application and allows the DOS to revoke or limit a passport if the person owes delinquent child support exceeding $5,000 (subsequently lowered to $2,500). Courts have long recognized that the right to travel internationally is a liberty right, protected by the Due Process Clause. See e.g., Kent v. Dulles, 357 U.S. 116 (1958). In the context of passport denial for unpaid child support, courts have found the statute meets due process requirements because it provides for notice and an opportunity to be heard prior to the state agency certifying the unpaid child support to the federal government. Weinstein v. Albright, 261 F.3d 127 (2nd Cir. 2001), aff’g 2000 WL 1154310 (S.D.N.Y. 2001).
The Department of Health and Human Services, Office of Child Support Enforcement (OCSE) requires states to issue (or request OCSE to issue) a Pre-offset Notice (PON) for all new cases within the Federal Tax Refund Offset Program, the Administrative Offset Program, and the U.S. Passport Denial Program. Following the issuance of a PON, there is a 30 day holding period before the passport denial occurs. The primary focus of the PON is to communicate the pending consequences of not resolving the unpaid amount – that is, administrative offset, federal tax refund offset, and passport denial if the amount is greater than $2,500. You can view a sample PON in the OSCE Federal Offset Program Technical Guide. The OSCE Guide strongly encourages states to send repeated PONs to the noncustodial parents at least annually.
The Taxpayer Advocate’s primary concern about the new IRS passport revocation program is its lack of meaningful notice and opportunity to be heard, which are the hallmarks of constitutional due process:
In the context of passport denial for a seriously delinquent tax debt, notice and an opportunity to be heard prior to the certification are limited. The FAST Act only requires two forms of notice to taxpayers who will be certified: (1) a notice sent to the taxpayer close to or at the same time as the IRS certifies the seriously delinquent tax debt (“contemporaneous notice”), and (2) language included in Collection Due Process (CDP) hearing notices explaining the potential certification.
Unlike the PONs in the child support context, currently, the IRS does not plan to provide any additional, direct notice to affected taxpayers beyond the statutory requirements. I believe this lack of notice may not satisfy taxpayers’ due process rights under the Fifth Amendment of the Constitution because taxpayers do not have a meaningful opportunity to be contest the certifications prior to them taking place. Furthermore, it infringes on the Taxpayer Bill of Rights, notably the right to be informed and the right to challenge the IRS’s position and be heard. The passport language in the broader CDP notice is delivered at a time when the taxpayer is focusing on resolution of the debt and claiming CDP rights – thus the language is buried among the other information and may not constitute effective notice. This is in contrast to the child support PON, which focuses primarily on the soon to occur consequences – offset and passport denial. Additionally, some taxpayers may not have the benefit of the passport language in the CDP notice at all because they received their CDP notices prior to the IRS including this language. At this time, the IRS has no plans to send a separate notice to these taxpayers.
Although the passport revocation program has not yet been implemented, the IRS is now including the following warning language on levy notices:
Denial or Revocation of United States Passport
On December 4, 2015, as part of the Fixing America’s Surface Transportation (FAST) Act, Congress enacted section 7345 of the Internal Revenue Code, which requires the Internal Revenue Service to notify the State Department of taxpayers certified as owing a seriously delinquent tax debt. The FAST Act generally prohibits the State Department from issuing or renewing a passport to a taxpayer with seriously delinquent tax debt. Seriously delinquent tax debt means an unpaid, legally enforceable federal tax debt of an individual totaling more than $50,000 for which a Notice of Federal Tax Lien has been filed and all administrative remedies under IRC § 6320 have lapsed or been exhausted, or a levy has been issued. If you are individually liable for tax debt (including penalties and interest) totaling more than $50,000 and you do not pay the amount you owe or make alternate arrangements to pay, we may notify the State Department that your tax debt is seriously delinquent. The State Department generally will not issue or renew a passport to you after we make this notification. If you currently have a valid passport, the State Department may revoke your passport or limit your ability to travel outside of the United States. Additional information on passport certification is available at www.irs.gov/passports.
The Taxpayer Advocate’s critique of the passport revocation program continued by calling for the IRS to provide additional notice to affected taxpayers that their right to travel may be at risk:
The IRS’s current policy of relying exclusively on the CDP notice to provide pre-certification notice also ignores behavioral research. This is a topic I discussed last year in the Annual Report to Congress Most Serious Problem on Voluntary Compliance and in a related Literature Review on Behavioral Science Lessons for Taxpayer Compliance. One topic that came up repeatedly in the literature was the concept of salience, focusing on the timing and relevancy of communications. A simple way to increase the salience of the passport notice would be to issue a stand-alone notice shortly before the certification, similar to the child support PON that is issued 30 days prior.
The IRS needs to approach passport certifications from the point of view, “If we want people to do something, what’s the best way to make that happen?” Here, the IRS wants taxpayers to resolve their tax debts – either by fully paying the liability, entering into a payment plan, or having their accounts corrected if the liability is incorrect. A stand-alone notice, focusing only on the pending harm that will occur if the taxpayer does not resolve their account quickly, is likely to be successful in prodding taxpayers to take action. However, the IRS doesn’t plan to send out a separate notice other than the notice at the time of the passport certification, which triggers many kinds of actions.
As the IRS and State Department are preparing to implement the passport revocation program, it remains to be seen whether those agencies will take note of any of the Taxpayer Advocate’s comments, particularly her concerns about meaningful lack of notice and opportunity to be heard before certification to the State Department. The Taxpayer Advocate concludes by noting that in her next blog post, she intends to discuss “the actual operations of the passport certification process, showing how the IRS’s lack of notice leads to an inefficient and burdensome process.” Stay tuned.