IRS Gets Tough With US Expats Over Unpaid Tax By Threatening Passport Revocation

Defaulting US expat taxpayers are at risk of having their passports cancelled.

Expat American citizens who’ve fallen behind on their taxes have been aware for a while of the risk of having their passports revoked, but many have adopted the head-in-the-sand defence of not believing the threat would ever become reality. Unfortunately, according to the IRS, it’s about to be fully enforced.

The USA’s State department along with the IRS are now escalating the enforcement of what’s known as the FAST (Fixing America’s Surface Transportation Act) law, which allows the state to either revoke existing passports or refuse their renewal should outstanding tax debts not be paid. Enforcement began in February last year and was only applied to new or renewal passport applications, but the IRS is gearing up and referring unresolved debts for revocation.

A number of those about to be affected are believed to be expats living and working overseas with no actual intention of ever returning home, with the cut-in point being tax debts of $52,000 or more. Some 400,000 reluctant taxpayers have now been sent reminders they’re at risk of having their passports revoked if they don’t make a payment proposal to the IRS. As at the end of June this year, some $11.5 million in back taxes has been paid, with 1400 reluctant offenders making acceptable payment agreements.

Given that the threat is something of a blunt instrument, one New York law firm is voicing its concerns about the 30-day window in which back tax must be paid or an arrangement made. One expert immigration lawyer told the media his firm’s major concern is that an expat client may have been sent a tax demand but didn’t actually receive it and is refused entry on his next visit home unless he immediately settles the debt. However, the process can take from several months to several years, during which time the debtors’ families are still overseas.

According to another legal expert, the vast majority of US citizens don’t have passports, with the threat seemingly disproportionately aimed at American expats who have work permits and visas which will still be valid and who are unlikely to be expelled from the country should they no longer have a valid passport.There’s also the possibility they may apply for citizenship in their present country of residence as part of revoking their USA citizenship, thus avoiding payment. Tax experts are also warning US expats to check any notification they receive for fraud or mistakes which may have been made by the IRS. Although fraud is unlikely, it’s better to be safe than sorry.