Managing federal tax debts exceeding $59,000 requires careful attention and strategic actions. This article discusses the process, implications, and steps to resolve substantial tax debts that could impact your passport status.

Understanding Substantial Tax Debt

A “seriously delinquent” tax debt is a federal tax liability exceeding $59,000 (to increase annually for inflation), including interest and penalties (indexed annually for inflation). It triggers when either a Notice of Federal Tax Lien has been filed, all administrative remedies under IRC §6320 have lapsed, or a levy has been issued.

IRS Reporting to the State Department

Upon reaching this threshold, the IRS can report the liability to the U.S. State Department under IRC §7345. The consequence may involve the State Department withholding passport renewals, issuing new passports, or revoking existing ones. U.S. citizens abroad with revoked passports can still use them for return travel to the U.S., as limited passports may be issued.

Responding to IRS Certification

When the IRS certifies a taxpayer’s debt, they receive Notice CP508C. However, resolution options exist, including:

• Entering into an installment agreement, an offer in compromise with the IRS, or a settlement agreement with the Justice Department.
• Requesting innocent spouse relief.
• Making a timely request for a collection due process hearing.

Several exceptions exist that exclude taxpayers from being considered seriously delinquent, such as bankruptcy, residing in a federally declared disaster area, a debt deemed not collectible due to hardship, or having a pending installment agreement or offer in compromise.

Taking Action: Resolving Passport Issues

If a taxpayer believes the certification is erroneous or falls into one of the exceptions, they can initiate resolution by contacting the number provided on CP508C. Additionally, taxpayers can file a suit in a Tax Court or district court to challenge the accuracy of the certification.

Upon successfully resolving the tax issue, the IRS commits to reversing the certification within 30 days, allowing individuals to regain control over their passport status.

Stay informed and proactively address substantial tax debts and passport-related concerns. Understanding the process and available options is crucial for business owners navigating the complexities of IRS certification. If you are in this situation, take the necessary steps to resolve the issue and regain control over your financial and travel matters.