Ask The California Employment Tax And Payroll Tax Attorney – Fighting Back When The IRS Labels You “Seriously Deliquent Taxpayer”

By Robert S. Schriebman
2021

Introduction

In Article 574, I set forth the rules relating to labeling one as a “Seriously Delinquent Taxpayer”. I discussed the “FAST Act” and IRC § 7345. I also discussed the case of Robert Rowen and the unsuccessful arguments offered by Rowen in his U. S. Tax Court case. (Robert Rowen V. Commissioner; U.S. Tax Court, CCH DEC. 61,847, 156 T.C. No.8 (Mar. 30, 2021)

An individual may be designated as seriously delinquent if they owe the IRS more than $50,000. The designation means that the IRS Commissioner makes a recommendation, pursuant to IRC § 7345 to the Treasury Department to contact the Secretary of State concerning the status of the taxpayer’s passport.  The Secretary of State then has the option of refusing to issue a passport or to revoke an existing passport. There is a mistaken impression that the IRS has the power to revoke one’s passport. This is not true. All the IRS can do is notify the Secretary of Treasury recommending passport action. The IRS does not have the power to impact a taxpayer’s passport.

The Rowen case was the very first Tax Court case to deal with a taxpayer’s rights involving new § 7345. It set forth several options available to a taxpayer when the IRS sends a notice concerning passport issues. Those options will be discussed later in this article.

On July 19, 2021 the U.S. Tax Court decided its second case concerning Section 7345. Garcia V. Commissioner., U.S. Tax Court, 157 T.C. No. 1, (July 19, 2021) This article will discuss the new Garcia case and the additional taxpayer options set forth.

The Garcia Case

The Garcias’ owed the IRS more than $500,000. The IRS sent them Notice 508C informing them that they were both classified as “seriously delinquent” and that their respective  passports were in jeopardy. Prior to this notice the Garcias’ filed an offer in compromise (OIC) that was considered processable. Upon receipt of the 508C Notice they filed a joint petition in the U.S. Tax Court to challenge the IRS passport action.

The pendency of the Garcias’ OIC suspended collection efforts by the IRS as this is long standing policy with IRS. Suspending collection means that their tax debt is no longer considered “seriously delinquent”. When the IRS learned that the OIC was submitted in good faith and processable, it cancelled its efforts to notify the Secretary of State. This action made the Garcias’ Tax Court petition moot. However, the Court ruled, for the first time, that a married couple may file a joint petition to challenge IRS action to revoke their passports.

Conclusion

The Rowen and Garcia cases established viable avenues available to taxpayers who wish to challenge any IRS potential action impacting a passport:

1. If you owe the IRS more than $50,000 pay down your debt so it is below $50,000
2. File a timely Collection Due Process (CDP) petition
3. Enter into an installment agreement and make the payments timely
4. Have a good faith processable Offer in Compromise
5. Order account transcripts to see if any part of your IRS debt time-barred and no longer collectable.
6. File a timely Tax Court petition to challenge potential IRS passport action. A joint petition filed by both husband and wife is permissible.

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Robert Schriebman has a successful practice in the Rolling Hills
Estates area of Los Angeles County serving clients throughout California and the United States. He has successfully dedicated more than 50 years to helping individual taxpayers, business owners, CPAs, Enrolled Agents, and tax attorneys navigate the complicated tax systems of the federal and state governments. Mr. Schriebman is in private practice. He is not affiliated in any way with the EDD and he is not employed by the EDD or any other agency of the State of California.

Robert Schriebman has written the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.

Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House.

Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House in addition to the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.

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