If Your IRS Tax Debt is Over $52K, You May Get Your Passport Revoked
The IRS may order revoking your passport if you owe $52K or more. But you can apply for a reduction of your debt.
The IRS has began notifying the State Department of tax payers with delinquent debts of at least $52K or over. You may be denied of a passport or revoked an existing one.
You will be exempt of the penalty if you:
- Have an installment agreement or offer in compromise.
- Are in bankruptcy.
- Have been identified as a victim of tax-related identity theft.
- Have declared hardship or live within a recognized disaster area.
The penalty is a burden special to business owners whose business are in delinquency with the IRS. Fortunately, the IRS has softened its requirements for businesses who want to apply for an offer in compromise (OIC) to settle their debts with the IRS.
One of the typical dilemmas for a business when things go South is to choose to pay taxes or business expenses, hoping that when things get better they will pay taxes and get up-to date. This happens to one of the cases who came to us for consultation. The business owner was expecting a payment for a contract and he decided to pay business expenses and payroll over taxes. He did not get the payment and had to litigate the case. In the meantime, the taxes accrued interest and penalties. He finally won the case, but the IRS put a lien on his credit and now all the money he received will go to satisfy the IRS debt first. He is out of business. Keep in mind that tax business debts coming from payroll are not dischargeable in bankruptcy.
This could have been prevented by filing an Offer In Compromise (OIC). The OIC allows the business to offer an amount lower than the tax owed, under strict criteria and after the IRS determines that it is the best alternative to both collect the taxes and keep the business in operation.
The new requirement to file an OIC starts with compliance with at least one quarter (down from two quarters) of continuous payments and compliance with all its current tax obligations when the OIC is filed and the responsible party or parties should have been identified for the assessment of something called Trust Fund Recovery Penalty (TFRP) or the party or parties who are liable for the unpaid business taxes at their personal level. This should continue while the OIC is pending approval.
Regardless of the economic condition of the business and even if the OIC cleared the business tax debt coming from income tax, payroll taxes will not be forgiven and the TFRP will be assessed at a minimum for payroll taxes owed plus interest and penalties. The amount owed will be paid jointly by all responsible parties at their personal level. If one of the parties fail to pay the other or others will be responsible for that unpaid share.
To apply for an OIC the IRS requires that either payroll taxes owed are paid or assessed against the responsible parties. The average of payroll tax owed related to the total debt is roughly 60%. This means that the maximum amount of debt forgiveness for a business thru an OIC is 40%. Still a good deal.
If you are a business owner and believe that your business can grow again if the tax debt issue is solved, give us a call to help you file an OIC and thrive again.
People who are in seriously delinquent tax debt can have their passports taken away if they do not pay what they owe or make arrangements to do so. Here’s what you need to know in a nutshell.
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What is Seriously Delinquent Tax Debt?
These are unpaid tax obligations of above $51,000 inclusive of tax penalties and interests.
What Happens if You Are in Seriously Delinquent Tax Debt and You Don’t Pay?
The FAST Act affects taxpayer in seriously delinquent tax debt who:
- Have not paid their taxes ($51,000 or above).
- Have no installment agreement put in place.
- Have been issued with an IRS notice of a tax lien.
- Have missed the period for challenging the tax lien.
- Have been issued a levy.
The IRS has an obligation to report such individuals to the State Department who are required to deny an application for passport or passport renewal to those taxpayers. This means you could lose your right to live and work in the U.S. if U.S. citizenship is not the one you were born with, or you could lose the ability to travel internationally if you have no other passports.
How to Avoid Losing Your Passport?
- Pay your tax debt in full.
- Make an arrangement for paying your tax debt through installment payments agreed with the IRS and keep up with the monthly deadlines and amounts.
- Settle your tax debt under an offer in compromise approved by the IRS on time and for the agreed amount.
- Pay the tax debt timely under the terms of a settlement agreement with the Department of Justice.
- Have a pending collection due process appeal with a levy.
- Have collection suspended because you made an innocent spouse election or requested innocent spouse relief.
Who is not affected by the FAST Act?
- A taxpayer who is in bankruptcy.
- A taxpayer who has been a victim of a tax identity theft.
- A taxpayer who is currently non-collectible due to hardship.
- A taxpayer who is situated in a federally declared disaster area.
- A taxpayer whose installments agreement request is pending.
- A taxpayer whose application for offer in compromise is pending.
- A taxpayer who has an adjustment and will be paying in full.
- A taxpayer who currently serves in a combat zone (the IRS won’t notify the State Department and the passport won’t be revoked, while they are in the zone).
Readers should note that this article is only intended to convey general information on these issues and that FAS CPA & Consultants (FAS) in no way intends for the contents of this article to be construed as accounting, business, financial, investment, legal, tax, or other professional advice or services. This article cannot serve as a substitute for such professional services or advice. Any decision or action that may affect the reader’s business should not rely solely on the contents of this article, but should rather be consulted on with a qualified professional adviser. FAS shall not be responsible for any loss sustained by any person who relies on this presentation. This article is subject to change at any time and for any reason.
If you are currently dealing with IRS debt, be sure to contact us and discuss which debt resolution option would be most beneficial for your present situation and future goals and opportunities.
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