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MSP #6: PASSPORT DENIAL AND REVOCATION

The IRS’s Plans for Certifying Seriously Delinquent Tax Debts Will Lead to Taxpayers Being Deprived of a Passport Without Regard to Taxpayer Rights

TAS Recommendations and IRS Responses

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1.

TAS RECOMMENDATION #6-1

Provide a stand-alone notice to all taxpayers 30 days (90 days for taxpayers outside the United States) prior to certifying their seriously delinquent tax debts that discusses the specific harm that will occur and outlines all options available to taxpayers to avoid or reverse certification.

IRS RESPONSE TO RECOMMENDATION: ​​​

​The FAST Act requires that the IRS contemporaneously notify individuals they have been certified pursuant to section 7345(a). Consistent with the statute, the IRS contemporaneously informs taxpayers of the certification using Notice CP508C. This Notice informs taxpayers of the consequences of certification and outlines the options available to taxpayers to reverse certification, including the immediate right upon certification to judicial review in federal district court or the Tax Court.

Moreover, for a taxpayer’s debt to qualify as “seriously delinquent tax debt,” the taxpayer will have already had an opportunity to go to Appeals—either in the deficiency or collection due process context—regarding the liabilities that gave rise to their certification. That is, the taxpayer will have already been informed by the IRS of the liability and of the available administrative remedies before receiving Notice CP508C.

Finally, the Department of State will give all certified taxpayers an additional 90 days from the date of application denial to resolve their seriously delinquent liability, should they be denied a passport or renewal.;

CORRECTIVE ACTION: N/A

TAS RESPONSE: The statute requires two forms of notification to taxpayers: a notice sent “contemporaneously” with transmitting a certification or decertification to the Department of State, and language in Collection Due Process (CDP) hearing notices about the certification of seriously delinquent tax debts and the denial, revocation, or limitation of passports. The IRS appears to be interpreting the word “contemporaneously” as “simultaneously,” and sends the stand-alone certification notice within a few days of the certification. The IRS’s interpretation of this requirement impairs the taxpayer’s right to be informed and right to challenge the IRS’s position and be heard because taxpayers may not learn the IRS has certified their tax debts until after certification. Instead, the IRS should send a notice 30 days prior, which meets the “contemporaneously” requirement, and then if the taxpayer does not resolve the issue, the IRS could also send a simultaneous notice. Such an approach would increase the salience of the notice and would likely be more successful in spurring taxpayers to act to resolve their tax debts.

Taxpayers may not have had an opportunity to resolve their tax debts during the time prior to notification, given the lack of personal contact prior to issuing a notice of intent to levy or notice of federal tax lien and the current level of service for taxpayers calling the IRS’s balance due telephone line. The IRS appears to be misinterpreting the 90-holding period provided by the Department of State. Although Department of State will not deny a taxpayer’s passport application during this time, it also will not grant a taxpayer’s passport application during this period. In practice, the 90-day holding period does not provide the taxpayer an additional 90 days to resolve his tax debt — the impact on the taxpayer has already occurred because the taxpayer cannot receive a passport. The benefit of the 90-day holding period is only that a taxpayer does not need to reapply and pay the application fee a second time if the taxpayer resolves the tax debt and the decertification is sent to and processed by the Department of State within this time. As explained in the Most Serious Problem, the Department of State advises the taxpayer it may take up to 45 days after the tax debt is resolved for the Department of State’s systems to be updated.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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2.

TAS RECOMMENDATION #6-2

Exercise its discretionary authority to exclude from passport certification any taxpayers who already have an open case with TAS at the time the IRS would otherwise certify their seriously delinquent tax debts.

IRS RESPONSE TO RECOMMENDATION: ​​​​​The IRS agreed to block certification of the taxpayers identified in a TAS Taxpayer Assistance Order filed immediately prior to implementation. Once TAS’s assistance to a particular taxpayer is completed, however, that taxpayer is once again subject to certification if he or she meets the certification criteria. After implementation, an individual receiving TAS assistance will be excluded from certification only if any of the statutory or discretionary exceptions apply. We understand that TAS performs an individual assessment of each taxpayer’s case received in their inventory, and in doing so, can expedite the status to meet exception criteria if the circumstances warrant. If after such analysis the circumstances do not warrant exception criteria, the case would not be excluded from certification. This approach preserves the integrity of the statute and ensures similar treatment of all taxpayers with seriously delinquent tax debts, including those who are not eligible for TAS assistance.

CORRECTIVE ACTION: N/A

TAS RESPONSE: The IRS response reflects a misunderstanding of the Internal Revenue Code and the character of TAS cases. First, taxpayers who have cases in TAS have or are about to experience significant hardship under IRC § 7811. Second, although TAS works diligently to resolve taxpayers’ problems quickly, TAS cases tend to be complex and take time to resolve. The Most Serious Problem points out that it takes an average of 88 days to resolve a TAS collection case from receipt to completion of all actions necessary to resolve the taxpayer’s problem. As explained in the National Taxpayer Advocate’s memorandum sustaining the TAD, excluding taxpayers who are already working with TAS prior to certification, does not lead to unequal treatment. Taxpayers come to TAS because the normal processes and procedures are not working, meaning they do not have equal access to the other certification exclusions and their ability to resolve their tax debts on their own may be hampered. Alternatively, they come to TAS because they are experiencing immediate harm or long-term adverse impact as a result of something the IRS is doing (or not doing). Although they may ultimately qualify for an exclusion, certifying them while TAS is working with these taxpayers is unnecessary and counterproductive, and creates extra work for the taxpayer, TAS, and the IRS. For a detailed discussion of the reasons why the IRS should exclude already open TAS cases from certification, see the TAD memoranda in Appendix A.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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3.

TAS RECOMMENDATION #6-3

Exercise its discretionary authority to exclude from passport certification any taxpayers who have requested certain alternative administrative remedies, including an Equivalent Hearing, a Collection Appeals Program (CAP) Appeal, or Post Appeals Mediation, and delay certification for these taxpayers until they receive a final determination from these programs.

IRS RESPONSE TO RECOMMENDATION: ​​​​Under section 7345(b), taxpayers cannot have “seriously delinquent tax debts” for certification purposes until their administrative appeal rights have either been exhausted or expired under IRC Section 6320 or IRC Section 6330. As such, all taxpayers will have had the opportunity, before certification, to exercise their appeal and procedural rights. The statute does not otherwise provide exceptions for further administrative appeals.

CORRECTIVE ACTION: N/A

TAS RESPONSE: Although all taxpayers are given CDP rights prior to certification as a result of either a statutory requirement or an IRS policy, not all taxpayers may have been able to exercise these rights. Taxpayers may have been experiencing a hardship during this time that left them unable to manage their financial affairs, or a CDP notice may have been undelivered. Recognizing the restrictions on CDP hearings, the IRS created alternative appeals programs for taxpayers, including equivalent hearings, the Collection Appeals Program, and the Post Appeals Mediation program. Taxpayers pursuing an appeal under these programs are pursuing important administrative rights and should not be threatened with the intrusive enforcement action of passport certification when they may be challenging a liability or the rejection of an installment agreement, offer-in-compromise, or currently-not-collectible hardship status. Where the IRS believes taxpayers are utilizing these processes “solely to delay collection,” the IRS has ample statutory authority to deny access to these processes.4 As discussed in detail in the Most Serious Problem, the IRS has wide discretion with respect to creating exceptions to passport certification.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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4.

TAS RECOMMENDATION #6-4

Revise its procedures for expedited decertification to transmit the decertification to the Department of State within two business days after the Collection Passport Policy Analyst receives the approved request form.

IRS RESPONSE TO RECOMMENDATION: ​​​Although not required by the statute, the IRS developed a process to provide expedited decertification for taxpayers who meet the criteria for decertification, plan to travel outside the United States within 45 days or reside outside the United States with urgent need for a passport, and have a pending application or renewal denied by the Department of State. This process will involve weekly approvals by the Commissioner of the Small Business/Self-Employed Division and weekly submission to the Department of State.

CORRECTIVE ACTION: N/A

TAS RESPONSE: The National Taxpayer Advocate understands that with respect to TAS passport cases that have been worked so far, the IRS has been willing to send expedited decertifications to the Department of State more quickly than was our understanding when drafting the Most Serious Problem. TAS’s understanding of the process had been that once the taxpayer has met decertification criteria, the account has been correctly marked, the taxpayer has requested expedited decertification, and an IRS employee has received supervisory approval to submit the request form to the Collection Policy Passport Analyst, it could still take up to an additional ten days for the decertification to reach the Department of State.

The National Taxpayer Advocate is pleased to learn the IRS has been able to send expedited decertification requests to the Department of State more quickly on a case by case basis. The National Taxpayer Advocate understands the restrictions placed on the IRS, specifically that under the statute only the Commissioner of Internal Revenue, the Deputy Commissioner for Services and Enforcement, or an operating division Commissioner may make the certification or decertification. The National Taxpayer Advocate will be reviewing the timeframes achieved for expedited decertification requests as the passport program reaches full implementation and will revisit whether any changes to the expedited decertification procedures are necessary.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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5.

TAS RECOMMENDATION #6-5

Update Notice 508C to include information about all ways in which a taxpayer can become eligible for decertification and advise taxpayers to contact the Department of State if they have an emergency or humanitarian need to travel.

IRS RESPONSE TO RECOMMENDATION: ​​​​​Notice 508C contains language explaining that to prevent the Department of State from denying, revoking, or limiting a passport, a taxpayer should pay the amount owed, or make alternate payment arrangements, such as an installment agreement to pay the debt over time, or an offer-in-compromise to settle the debt. It also includes language explaining what the taxpayer can do if they do not agree they owe the debt and provides a contact number to speak to the IRS. The notice also includes information about the availability of TAS assistance.

The provision of the FAST Act that grants the Department of State the authority to issue a passport to a taxpayer for emergency or humanitarian reasons despite certification was codified at 22 U.S.C. § 2714a. The Department of State is responsible for interpreting and implementing this provision. The IRS has no authority to do so. If a taxpayer’s passport is denied, revoked, or limited, the Department of State will issue the taxpayer a notice that contains the contact information for the National Passport Information Center, which is where the certified individual should address an emergency or humanitarian need to travel.

CORRECTIVE ACTION: N/A

TAS RESPONSE: The IRS response states that the current certification notice “outlines the options available to taxpayers to reverse certification.” This statement is misleading because the notice only includes two options for taxpayers to prevent Department of State from denying, revoking, or limiting a taxpayer’s passport: full payment of the liability or alternate payment arrangements, such as an installment agreement or an offer-in-compromise. The notice lacks any language about other situations where tax debts may be excluded from the program, such as if the taxpayer is a victim of identity theft, qualifies for Currently Not Collectible (hardship) status, or requests relief from joint and several liability (known as innocent spouse relief). Although the IRS has argued in the past that the exceptions are subject to change at any time, it is unlikely the IRS will remove exceptions, but perhaps it is likely that the IRS will add more exceptions. When the letter is revised periodically, it can be updated to include the current list of exceptions and refer taxpayers to the website for any updates.

The IRS states that it has no responsibility for informing taxpayers about the emergency and humanitarian exception because it is not codified in the Internal Revenue Code and it is administered by the Department of State. The National Taxpayer Advocate is not asking the IRS to interpret this requirement or step into the Department of State’s shoes to determine whether a taxpayer might receive relief. The National Taxpayer Advocate is simply asking the IRS to inform taxpayers about the existence of this provision and to point taxpayers to the Department of State to find more information. By putting this information in the letter, the IRS can avoid taxpayers calling in to ask about emergencies because the taxpayers will know to go directly to the Department of State. By refusing to include this information, the IRS is impairing taxpayers’ right to be informed and is inviting more work upon itself.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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