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IRS to Expats: Pay Now or Risk Losing Your Passport

The IRS set to begin revoking passports for unpaid tax bills.

The IRS had indicated it is ready to make good on its threat last year to begin revoking or refusing to renew U.S. passports as a means to collect unpaid taxes.

While the IRS has not started referring unpaid tax debt totaling $50,000 or more to the U.S. State Department for collection, it is scheduled to begin doing so in the coming weeks. Under USC-7345 (“Revocation or denial of passport in case of certain tax delinquencies”), the IRS may notify the U.S. State Department of “individuals with seriously delinquent tax debt.” It defines “seriously delinquent” as “an individual’s unpaid, legally enforceable federal tax debt totaling more than $50,000.” The State Department can then refuse to renew or revoke your passport except for return travel to the U.S.

According to the IRS’s website, the $50,000 threshold mentioned above includes interest and penalties. However, it specifically excludes non-delinquent debt, such as tax payments paid on time under an installment agreement or as part of an offer the IRS has made.

Having your passport revoked is obviously something you don’t want as an expat American. These inconveniences include being unable to open a bank account, check into a hotel, sign a rental agreement, or do something as simple as signing up for a mobile phone plan.

And, as we mentioned in our previous article, you could be on the hook for a delinquent tax bill and not even know it. This is because not having received a letter from the IRS does not mean you don’t owe the tax. For example, it is not uncommon for an expat returning home or filing a return to find out they had been already been “notified” of an audit by a letter they never received or that mysteriously got lost in the mail.

Bottom line: you should file your taxes now if you haven’t already before it’s too late. The writing is on the wall with the recently introduced FATCA, tax treaties (often including tax information exchange agreements (TIEAs)), and implementation of the OECD’s The Automatic Exchange of Information (AEOI).

But the good news is that the IRS’s Streamlined Foreign Offshore Procedure is a great way to start. Your tax advisor can let you know if you qualify or not for the program with just a simple assessment of your case.

One thing to keep in mind is that you cannot currently be under an audit to become eligible for the Streamlined Foreign Offshore Procedure. This means you need to file before you get that dreaded letter in the mail from you friends at the IRS.

IRS’ more aggressive initiatives to collect unpaid tax bills should have many law-abiding U.S. taxpayers concerned. But contacting your tax advisor today can go a long way in helping you to sleep better tonight.

-Eric la Cara