If Your IRS Tax Debt is Over $51K, You May Get Your Passport Suspended

The IRS will deny your passport if you owe $51K or more. But you can apply for a reduction of your debt.

Have overdue tax bills? Now the Internal Revenue Service (IRS) may deny you a passport, according to Fox Business. The IRS has begun notifying the State Department of tax payers with delinquent debts of at least $51K 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.

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This could have been prevented by filing an 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.

If you have any questions in relation to your IRS debts, send them to us

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Fulton Abraham Sanchez, CPA

Fulton Abraham Sánchez, CPA is a Certified Public Accountant, specialized In Tax Planning, International Business, Wealth Management and Offshore Banking. You can email him to fa@fascpaconsultants.com or follow us on Facebook : FAS CPA & Consultants.

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