According to Law360, Federal courts have upheld the U.S. government's ability to deny or revoke a citizen's passport over a certified tax debt in what some tax advisers have considered a draconian enforcement mechanism: prohibiting international travelto collect unpaid taxes.
Courts over the past year have uniformly rejected challenges to Internal Revenue Code Section 7345, passed in the Fixing America's Surface Transportation Act of 2015, which effectively allows the Internal Revenue Service to deny citizens with delinquent taxesof more than $50,000 the right to travel outside the country. The IRS can certify a taxpayer's debt over that amount, indexed for inflation to $52,000, as "seriously delinquent" and transmit that determination to the State Department, which can choose then to revoke or deny a passport.
The statute gives taxpayers several avenues to negotiate with the IRS on a compromise or installment plan to pay the debt before it is certified and sent to the State Department. The IRS' website details the options taxpayers have to resolve certified tax debts, and it includes information on situations where a debt will not be certified, such as when a taxpayer is negotiating in good faith with the agency or is in bankruptcy.
Jerry August of Fox Rothschild LLP said that though there are ways to avoidthe prohibition on travel, the law has left little room to raise a successful challenge in federal district courts or the U.S. Tax Court.
The Tax Court recently rejected a constitutional challenge to the program, that the law doesn't violate the Fifth Amendment. Robert Rowen's tax debt was properly certified by the IRS as seriously delinquent under Section 7345, Tax Court Judge Emin Toro said in the opinion. Rowen failed to pay federal income taxes for more than 20 years, accumulating a debt of nearly $500,000, the opinion said.
Although the State Department didn't take action to revoke Rowen's passport, he filed a petition in the Tax Court and asked the court to find the IRS' certification of his tax debt was erroneous, according to court documents.
Judge Toro said Section 7345 doesn't include any language that would prevent international travel in violation of the Fifth Amendment, as Rowen contested, and merely provides a process for the IRS to follow and transmit the certified tax debt to the State Department, which can determine whether to revoke or deny a passport.
A Georgia federal court also has found that Section 7345 the due process clause or other language in the Constitution. The U.S. government correctly denied Craig Thomas Jones' application to renew his passport over his tax debts, the court said in March.
When Jones tried to renew his passport in November 2019, the State Department said he was ineligible to do so because of the IRS' certification of his seriously delinquent tax debt, which stood at about $405,000, according to Jones' complaint.
Jones sued the government the next month. He argued in June 2020 that Section 7345 is unconstitutional because it violates an implied right.
U.S. District Judge J. Randal Hall disagreed. Section 7345 provides taxpayers with due process that satisfies requirements under the Fifth Amendment in the form of adequate notice by the IRS of their delinquency and the right to timely request a hearing, he said.
Jones' case before the Eleventh Circuit, where he has submitted his opening brief.
Taxpayers have so far had no more success in federal appeals courts, where they have argued the right to travel abroad as a U.S. citizen is a fundamental right protected by the Fifth Amendment.
Recently, a Tenth Circuit panel of a man who raised a constitutional challenge to the tax debt certification passport revocation process. However, a concurring opinion in the case offered some hope to challengers in suggesting a higher level of scrutiny should apply when a citizen's passport could be revoked.
U.S. Circuit Judge Carlos Lucero said a stricter standard of review may apply in cases that deal with the right to international travel, although the taxpayer in the case, Jeffrey T. Maehr, failed to raise that argument on appeal.
For U.S. taxpayers who have dual citizenship, the U.S.'s ability to revoke or deny passports can prove to be a nuisance even if they're living abroad.
Matthew Ledvina of Helm Advisors told Law360 that sometimes, traveling with a U.S. certified tax debt requires coordination between tax and immigration lawyers to make sure clients can prove their U.S. identity without a requisite passport and travel internationally. U.S. dual citizens can't hold themselves as foreign nationals, which can cause additional administrative burdens for clients with certified tax debts traveling back to the U.S., Ledvina said.
"I think when Congress passed this law, they never envisaged all these problems of people that are dual nationals," Ledvina said.
Read more at: Tax Times blog