Highway Bill Will Revoke Passports for Tax Delinquents and Bring Back Private Tax Debt Collectors

Congress has passed highway-funding legislation that includes two tax provisions that would allow the State Department to revoke the passports of long-term tax delinquents who owe more than $50,000 in tax debts and revive a program requiring the IRS to hire private debt collection agencies.

The House and the Senate passed differing versions of the highway funding bill last month containing the provisions despite warnings from an expatriate group known as American Citizens Abroad and the National Treasury Employees Union, which represents IRS employees (see Expats Worried over Passports Being Revoked for Tax Debts and Highway Bill Would Revive Private Collection of Tax Debts). The Senate and the House both passed the conference committee’s bill Thursday by a vote of 83 to 16 in the Senate and 359 to 65 in the House. It was signed into law Friday by President Obama, providing five years of funding for highways and other transportation infrastructure. The two provisions were included as “pay-fors” or “offsets” under the assumption that they would raise extra revenue for infrastructure spending.

However, the provisions remain controversial. “Title XXXII of the 2015 FAST Act opens the door for turning a federal tax dispute into an infringement on an individual’s ability to travel abroad,” said Jim Ferguson, tax law editor at Bloomberg BNA. “There are some minimal procedural safeguards, but like any law, those will be subject to future amendments.  You could be denied a passport, or have your issued one revoked. The U.S. government thinks this will raise $400 million over the next decade. The trigger is a $50,000 disputed tax bill. That seems like a lot to most individuals, in the context of a single year of income tax. But many income tax problems build up over several years, and it doesn’t take much of a valuation dispute to reach that level in estate tax returns.”

The $50,000 threshold can include penalties and interest. The passport revocation would only occur after the IRS issues a lien or levy. If a taxpayer enters into a payment agreement with the IRS, the passport won't be revoked.

On the matter of using private debt collectors, the IRS has tried using outside contractors in the past, but the program has been discontinued twice because it did not bring in the revenue anticipated and provoked complaints that the debt collectors were harassing mostly low-income taxpayers. The National Treasury Employees Union has also pointed out that it is not a good idea to revive the program at a time when criminals are posing as IRS agents and calling taxpayers threatening them to send in money to settle fictitious tax debts.

“Congress should not be giving the green light to debt collectors,” NTEU national president Tony Reardon said in a statement.