For the last several months, our clients and prospective clients have been receiving notices from IRS that their “seriously delinquent” accounts are now being referred for passport suspension or renewal-block.  Today, we try to articulate what this really means and what to do about it.

Background on this might not be all that interesting, but HERE’s the Code section that authorizes the IRS to initiate a block on passport renewal or suspend the passport altogether.   Very basically – larger debts that go unresolved  and get all the way to liens and other collections, are going to produce these passport suspensions.  The specifics beyond that – debt size, lien or no lien, appeals exhausted – are more than we’re going to address in our blog and really merit a case-by-case analysis, which doesn’t take even a day with the Power of Attorney.  There are other scholarly blogs that have already done more exhaustive analysis of the code on this subject.  See THIS ONE, for instance.

Ways to avoid and reverse the flag:

1. Get resolved – get an Installment Agreement (simple or complex), an Offer in Compromise – these resolutions are listed in the Code, and we’ve seen them work to remove the “seriously delinquent” code from the Account Transcript

2. File a timely Collections Due Process (CDP) Appeal  (need to find a lien, notice of intent to levy with time to allow this) – we’ve also seen this work first-hand

3. File a bankruptcy?  We have not done this, and bankruptcies are a big hole that hasn’t been clarified.  A Chapter 7 discharges the debt, but the lien persists, so does this mean your debt is gone AND your passport?

4. Get into Currently Not Collectible status – this was a big question mark, since it’s not in the code, it’s an administrative decision by collections.   Different people have different opinions about whether Currently Not Collectible will/should block the passport problems.  Personally, I expect it to prevent suspensions and blocks.  The purpose of the program is to stimulate resolution on the merits.  There’s no justification for punishing poor people who can’t afford to hire someone to do an OIC for them (lord knows you shouldn’t do one yourself…).    It’s also dumb to punish someone who pays on their Installment Agreement for several years, then loses their job.  So far, we can attest to at least one case where the “Seriously Delinquent” code was taken back  off the  case after the CNC designation. 

What we don’t know yet

1. What the State Department action looks like – is it a letter?  How soon does it come after the certification by IRS?  Do they do them case-by-case or in bulk?   We know that you have to have BOTH the IRS action and the State Department action.

2. Process for reversing a suspension or renewal block – How quickly can you undo the action once State Department takes their action.   We assume you have to get right with IRS, but then how is that communicated to State Department?  Is it like the Federal Payee Levy Program, where a “block” goes in place an 45 days later the Social Security check is restored? One thing we can assume is reversing the block/suspension is not going to be a fast process, so it’s far better to prevent the action than reverse it.   Duh.

3. Can you pay your debt out of “seriously delinquent” territory once you’ve been certified?    This is an interesting question, but the answer is not that practical because if you can afford to be paying your debt down under a threshold to reverse a passport suspension, you probably can afford an Installment Agreement that will protect your passport.

As a general policy, there’s a lot of reasons to like passport suspensions and blocks as a method of bringing certain delinquent taxpayers into a resolution.  Ideally, it’s hitting some higher-net-worth travelling who probably are just delaying the inevitable instead of paying down, paying off.

What I don’t like is the over-the-road trucker clearing $25k annually while living in his truck who might lose his job because he can’t get into Canada over this.