IRS to start revoking passports

Anyone the IRS certifies as having a seriously delinquent tax debt in an amount in excess of $50,000. If the IRS uses the bank account information provided through FATCA then Americans who haven’t filed could be put even more in a bind.

However, in most cases, Americans Overseas who never knew they had to file shouldn’t be impacted because no return of any kind would have been prepared. The IRS needs to know that a person owes more than $50,000 in taxes to have their passport cancelled.

Substitute return

The IRS could create a substitute return. A substitute return is a tax filing that the IRS will create for a taxpayer in order to preliminarily calculate the tax due, if a taxpayer neglects to file his or her own return.

FATCA provides the IRS bank information. But it provides no information on foreign wages information or other income. A substitute return would be (very) inaccurate. It may not reflect all the items of income, deductions and credits that should be on the return. It would be hard to assess a $50,000 tax debt.

There are those with (only) investment income. With a back-of-the-envelope calculation, to owe $50,000 in taxes, one would have to have about $250,000 of investment income (referring to investment income reported under FATCA, not total income). This could be derived from FATCA information and trigger the new law.

Potential loss of passport

However, the new law has a provision that additional notice of the potential loss of a passport must be included in collections communications. This would mean that Americans stopped at the border would have had plenty of notice from the IRS of a pending revocation or cancellation of their passport. The IRS is however still notoriously poor at tracking correspondence with international taxpayers as was reported by Tigta ,a government organisation that did an audit on this subject.

This isn’t the first time Congress has tried such a proposal. Two years ago, the House introduced a similar bill. It never got anywhere. But tucked away in the 1,300+ page bill? It sailed through with virtually no amendments. The new law is effective immediately.

In conclusion travelling to the US as an accidental American seems to be safe for now.

But the U.S. government is very actively pursuing Americans with a tax obligation. The U.S. government is not shying away from any means to find and tax US persons.

Read more about this topic

Forbes: New Law Warns Delinquent Taxpayers: Pay Up Or You Could Lose Your Passport

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CNN: Overdue taxes? You could lose your U.S. passport

Let’s talk about US tax: Lose Your US Passport for Unpaid Taxes