With tax season right around the corner, one cannot help but notice the increase in television and radio commercials warning taxpayers of the consequences associated with not filing taxes correctly or on time.
Although some commercials tend to exaggerate those consequences, it is true that if a taxpayer fails to pay the taxes he or she owes the Federal Government, the Internal Revenue Service (“IRS”) may come after you to collect.
The most common ways associated with collecting back taxes owed are wage garnishment and tax liens against some or all of a taxpayer’s property. But what about denying you a passport or revoking your existing one in order to insure that a taxpayer will not literally escape his tax obligations? Congress has given some thought to this proposal and has shown a disconcerting amount of support in favor of legislation designed to execute the aforementioned objective.
Published February 18, 2015
Between 2011 and 2014, and over the course of three Congressional sessions, four bills were introduced by Congress containing language that would give the IRS the power “not [to] issue a passport or passport card to any individual who has a seriously delinquent tax debt.” (H.R. 5196 at § 202) (emphasis added).
Congress made the first attempt in 2011-2012. During Congress’s 111th Session, language was introduced granting the IRS the power to regulate certain passport issuances. The provision passed in the House but ultimately did not survive the Senate’s vote.
Despite this setback, the language re-surfaced for a second, third and fourth time in Congress’s 2013-2014 session with the Highway Funding Act of 2014. Similar to Congress’s first attempt, the passport revocation language did not pass through both Houses of Congress. However, it bears noting that various Congressional committees are still analyzing and considering such legislation and it remains unclear whether the passport revocation language will become enforceable law.
Evidently Congress views passport revocation as a viable solution to collecting unpaid taxes since the proposal continues to find its way around Capitol Hill. It appears to be a knee-jerk reaction to the recent introduction and enforcement of tax evasion legislation designed to clamp down on the super-wealthy who have been parking their assets offshore. Congress believes that adding a provision curtailing an individual’s freedom of movement and ability to travel outside of the United States would help the IRS collect unpaid taxes. Not only would the taxpayer remain within the legal jurisdiction of the United States, but his or her potential tax evasion activities would be severely disrupted due to the inability to travel.
However, I believe Congress should stop and reconsider how such a provision would function and how it would affect taxpayers. Vesting such power adds a formidable weapon to the IRS’s already effective tax collection arsenal. Further, this potential enforcement mechanism has the power of putting some U.S. citizens in very inconvenient and potentially dangerous situations. Although the language in most of the proposed legislative provisions does carve out an exception for revoking a passport in an emergency situation, the language does not fully consider how it would affect U.S. citizens living and working overseas.
As I have mentioned before in previous blogs, in the face of an ever growing and more complicated U.S. tax code, U.S. citizens overseas face an exponential tax filing burden unknown to most domestic taxpayers. Buried in the IRS’s increasing stack of forms are some compliance requirements that assist the IRS and FinCen in tracking international assets held by all U.S. citizens, both those abroad and living in the United States. Two of the most common forms are the Foreign Account Tax Compliance Act (FATCA) and the Foreign Bank Account (FBAR)
Central to the passport revocation provisions included in these legislations is the definition of a “seriously delinquent tax debt,” which has been pegged to mean a tax debt equal to $50,000. $50,000 is a significant sum, however, many Americans overseas are earning in salaries that appear much higher than the US average, given the economics of the foreign jurisdiction in which they live. Further, these taxpayers must translate these salaries and incomes into the U.S. dollar equivalent which subjects them to currency fluctuations. Because of these realities, a filing error can quickly increase to the legislative threshold. Also, given the complexity of the tax code, the new filing requirements, and the penalties associated with FATCA legislation, back taxes due of $50,000 can quickly become a reality.
Unlike their counterparts abroad, a U.S. citizen working domestically who would be denied a passport or have it revoked, could stil travel freely within the 50 states and continue to work and function. An American overseas in the same situation would not only lose his or her ability to work, but also would lose the only valid identification capable of proving the individual’s nationality. In areas of the world such as the Middle East, this could potentially expose them to serious danger.
Paying your taxes is important and those who do not should certainly be sanctioned. However, is limiting their freedom of movement commensurate with owing back taxes, and more importantly back taxes? What if the tax debt is contested by the taxpayer due to an IRS error? Fairness would not permit passport revocation and restrictions on freedom of movement. These are serious concerns and questions that move beyond the scope of tax law and into the realm of other constitutionally guaranteed rights.
One of the greater concerns, if the passport revocation becomes law, is to whom will Congress grant this power next? Revoking a citizen’s passport is generally associated with scenarios of national security or criminals that pose a serious risk of flight. By giving the IRS the power to revoke passports, Congress is trivializing this draconian enforcement tool and inviting its possible future application to other areas where compliance with federal law is lacking. For example, Concentrated Animal Feeding Operations (“CAFO”) contribute an exorbitant amount of pollutants to potable water sources in the United States threatening human life. Could Congress give the EPA the power to revoke CAFO farmer’s passports for failure to comply with the Clean Water Act (“CWA”)?