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Ask The California Employment Tax And Payroll Tax Attorney – Protecting Your Passport From The IRS

By Robert S. Schriebman

2024

Introduction

If you owe the IRS $62,000 or more, the IRS can label you as a “seriously delinquent tax debtor.” This means that the IRS can turn you over to the Secretary of State with the recommendation that your passport be revoked. The power of the IRS to do this to you is found in IRC § 7345. There are a couple of ways to avoid being designated as a seriously delinquent tax debtor:

  • Reduce your outstanding tax deficiency below $62,000 (adjusted annually for inflation).
  • File a timely Collection Due Process petition (CDP).
  • Enter into an installment payment arrangement and make payments faithfully and on time.

The installment payment arrangement can be negotiated with a CDP Settlement Officer or an IRS Revenue Officer. In any installment payment arrangement, the IRS has the right to revisit the deal every couple of years or so, to determine if your financial circumstances have changed. This is what happened in the case of Daniel O. Nye. Let’s take a look at the Nye case and see why Mr. Nye got the IRS to hold off on his passport revocation but blew it when he failed to cooperate in updating his financial profile.

IRC § 7345 – An Overview

If the IRS certifies you as a seriously delinquent tax debtor, IRC § 7345 provides that the certification shall be turned over to the Secretary of State and you risk the denial, revocation or limitation of your passport. There are four elements to this law:

  1. A tax has been assessed against you.
  2. The tax debt exceeds $62,000 (adjusted annually for inflation).
  3. The tax is unpaid and legally enforceable.
  4. The IRS has either issued a levy or filed a Notice of Federal Tax Lien and your administrative rights, usually a CDP hearing, has been exhausted.

The Nye Case

Daniel Olin Nye v. Commissioner, (T.C. Memo 2023-154, December 28, 2023)

Between the years 2011 – 2016, Daniel managed to owe the IRS over $99,000. In 2017, he entered into a CDP proceeding and was granted a monthly installment payment arrangement of only $318. As part of the deal, Daniel agreed that the IRS could review his financial situation every few years to see if his financial position would allow an increase in monthly payments. Because Daniel had an in-place installment agreement, the IRS did not certify him to the Secretary of State for the purpose of impacting his passport. He was allowed full passport privileges. After a couple of years, the IRS requested Daniel submit an updated financial statement with supporting documentation. Daniel failed to do so.

Due to Daniel’s failure to furnish updated financial information, the IRS turned him over to the Secretary of State and his passport was revoked. Daniel filed a petition in the US Tax Court to challenge the passport revocation. He told Chief Judge Kerrigan that he sent the IRS his updated financial condition with supporting documentation. However, he could not prove to Judge Kerrigan that he actually furnished a revised financial statement, etc. to the IRS. Judge Kerrigan had no power to cancel the revocation of the passport. Daniel was out of luck.

Conclusion

Prior to the Nye case, Tax Court decisions in this area only discussed the CDP process as the only avenue for avoiding passport revocation other than reducing the tax debt below $62,000. The Nye case told us that establishing an installment payment arrangement is also an avenue for keeping your passport privileges.

For more information see IRS Publication “Understanding Your CP508C Notice.

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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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