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Is the USA taking passports from citizens who have not filed taxes?

Is this true? Do I have to worry?


Maybe.


Here are the facts:


The United States won’t take away your passport for simply not filing a tax return. However, under a new law that went into effect in February of 2018, certain US citizens can have their passports either confiscated or revoked, or have a passport application or renewal application denied. There are very specific parameters that must be met before a US citizen is placed on this list, but it can happen without your knowledge. In order to be placed on the list given to the state department, a US taxpayer has to be first certified as “seriously delinquent” by the IRS. In order to be certified as seriously delinquent the IRS has to first:

  • Assess a tax – This can be done whether you file a return or not. If you haven’t filed the IRS can create an SFR (substitute for return) assessment for you based on information they have or record or your “implied income”.

  • Notify you of this debt – Not only must the IRS notify you of this debt, they must also allow time for the entire collection process to unfold, giving you ample notice to remedy the situation. However, the problem for many US taxpayers living abroad who haven’t filed tax returns in recent years is that the IRS will use the last known address, which may not be current or in the same country. In this case, years of notices and correspondence may never reach you.

  • You must owe (as of 2019) more than $52,000 to the IRS inclusive of interest and penalties (this amount is indexed annually for inflation).

  • You must not be in bankruptcy (or a number of other exceptions, but you must be in contact with the IRS for them to be aware of these exceptions).


Does the IRS have information on me? How would I have a tax due without knowing it?

You are at the highest risk of having a balance due to the IRS that you don’t know about if you haven’t filed tax returns recently AND:


  • You have a US based brokerage/investment account that is not an IRA, even if you have not taken any money out of this account

  • You have an interest bearing bank account, money market account, or CDs in a US bank, credit union, or thrift

  • You have taken income out of an IRA, 401(k), pension plan, or other retirement account, even if you had taxes withheld

  • You have performed work for any US based company that issues forms W2 or 1099-MISC

  • You have sold a home in the US (even if that sale would have been tax free based on the rules for selling a primary residence)

  • The above list isn’t exhaustive, but it represents the most common issues that we have seen give rise to passport certification by the IRS.

  • Most US citizens living abroad should not fear being on this list just because their returns are delinquent. It isn’t easy to get on this, list but it is best to take care of your US tax obligations to avoid this potential problem as well as a number of other issues that can creep up.


The principal tax preparer at our firm handled what is believed to have been the first known case of passport certification reversal with the IRS.


In the case of this taxpayer, there was a tax balance due, however it was nowhere near the $52,000 required. So, if you do find yourself in this position, we have experience working with the IRS to return your passport rights to you (however it’s not an easy or inexpensive process, and may take any number of months).


It’s always best to take care of any potential issues before you find yourself in this position.


We are happy to assist you in getting copies of all data that is on file with the IRS for you as well as to help you to become compliant with your US tax reporting obligations. The vast majority of our clients end up owing no taxes to the United States, but we must file the reports to record those facts.


In fact, clients with US citizen children with social security numbers are often eligible to receive refunds they had no idea were due to them, and were missing out by falling behind with their taxes and not filing.

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