The Woodlands, Texas - Last month, a few tax-related measures were slipped into H.R. 22, known as the "Fixing America's Surface Transportation Act." These provisions could add some significant teeth to the IRS' ability to collect past-due tax debts at a time when budget shortfalls have limited the agency's ability to do so efficiently. They include the addition of a new section to the Internal Revenue Code, I.R.C. § 7345, which authorizes the Treasury Secretary to certify that a taxpayer has a "seriously delinquent tax debt." A "seriously delinquent tax debt" is defined as a federal tax liability which been assessed and is greater than $50,000, and for which the IRS has either filed a lien or otherwise issued a final levy notice. This certification will be issued by the IRS to the Secretary of State, and authorizes the Secretary of State to deny, revoke, or otherwise limit that taxpayer's U.S. passport. There are notable exceptions to the new law, most generally applicable when the taxpayer has already entered into an arrangement to satisfy the tax obligation (via an installment agreement or offer in compromise), or otherwise has a pending request disputing the amount of the assessed delinquency. If the taxpayer is abroad at the time their passport is revoked, the revocation can be limited to allow for the taxpayer to return to the United States.
Taxpayers certified as having a "seriously delinquent tax debt" under this new law are entitled to prompt written notice, and that notice must specify that the taxpayer is entitled to file suit in the U.S. Tax Court or a federal district court in order to challenge the certification. Additionally, the new law amends certain related Internal Revenue Code provisions so that going forward, notices of federal tax lien and notices of intent to levy now include language advising taxpayers that they may be subject to this certification and the resulting impacts on their passports in the appropriate circumstances.
While the procedural details of how all of this certification, exchange of information, etc. will work between the two agencies has yet to be published, the law's enactment makes it evident that the IRS will continue on the path it's been on for several years now in going after those that have not complied with the tax laws and are (or may be) attempting to avoid doing so by their presence outside the country's borders. Since 2009, the IRS has taken active steps toward collecting unpaid and unreported taxes from U.S. citizens either living abroad or with assets abroad that are required to be reported on U.S. tax returns. The multiple versions of the Offshore Voluntary Disclosure Programs, as well as the enactment of the Foreign Account Tax Compliance Act ("FATCA) are previous measures the IRS and Congress have taken to combat offshore tax avoidance, and this most recent measure appears to be another tool in the IRS' belt along similar lines.
It will be interesting to see what, if any, constitutional challenges this law might face in the upcoming years. The Supreme Court has already addressed the constitutionality of passport revocation in its 1981 ruling in Haig v. Agee. In 1974, Phillip Agee, an ex-CIA operative, launched a "campaign to fight the United States CIA wherever it is operating." Agee then began revealing the classified information, including the names and whereabouts of CIA employees all over the world, putting them and their missions at serious risk, and in some instances leading to physical violence against them. The then U.S. Secretary of State Cyrus Vance revoked Agee's passport, leaving him stuck in West Germany where he was living at the time. In response, Agee filed suit claiming that the revocation of his passport violated several constitutional rights, including his Fifth Amendment due process right to a pre-revocation hearing and a First Amendment right to criticize the U.S. government. Agee also claimed a liberty interest in his right to travel, a right that has been recognized in several cases before the Court. The Court rejected Agee's constitutional claims, noting that national security and foreign policy considerations trumped each of them.
In cases such as those that might arise under I.R.C. § 7345, however, it's hard to imagine any national security or foreign policy considerations that could be intelligently argued as relevant or applicable. Rather, it seems that Article I, Section 8's Taxing and Spending Clause might be the constitutional basis for the government's position in that hypothetical case, which seems to put the government in a much weaker position than in those cases where national security interests have prevailed over due process concerns. I'm certainly no constitutional law scholar; I had to look up exactly where in that sacred document the Taxing and Spending Clause is located. Nevertheless, I'll be interested in how any such debate develops in the upcoming years. In the meantime, we can all sit back and observe the administrative nightmare that's almost certain to describe the interchange between these two notoriously inefficient agencies, and the impact on taxpayers.
Maybe that idea of renouncing citizenship isn't so bad after all?