The IRS garnishes paychecks and issues levies on accounts every day. It can seize homes, 401k's, business equipment and almost everything else.
So powerful in fact, that if you owe it more than 51,000 it can trap you in the United States and restrict your ability to travel.
Internal Revenue Code Section 7345 provides the IRS the power to limit your travel and even revoke or deny a passport.
Most people who owe the IRS a substantial amount of money right now, have already received a CP508C letter or a “Notice of Certification of Seriously Delinquent Federal Tax Debt to the State Department”.
This letter is letting those people know that the IRS is going to rat them out to the State Department so that the State Department can implement the restrictions.
If you're a “world traveler”, don't panic yet. There are a few ways to prevent this from happening.
Pay the debt below $51,000.00
The passport punishment is limited to those with debt above this threshold who've previously been sent a lien notice or a final notice of intent to levy.
If your debt is close to this amount or you can otherwise pay it down to this amount…you can do so and prevent the loss of your ability to travel.
File an appeal to a final notice of intent to levy or notice of lien
If you've received the final notice from the IRS regarding levy or lien you have 30 days to file an appeal. Filing the appeal stops the passport revocation process. Appeals sometimes take several months and you can use the process to finalize one of solutions below (except bankruptcy)
If you don't recall receiving a final notice check with the IRS or have a professional do a background check.
Arrange an installment agreement or non-collectible status agreement with the IRS
Setting up an installment agreement or getting on non-collectible status kills two birds with one stone. It stops IRS collection activity like levy and garnishment, but also protects your passport.
File an offer in compromise
An offer in compromise is the IRS' way of settling debt for less than what is owed for those people it believes can't afford to pay it in full within the time remaining on the statute of collection period.
The trick here is that the Offer in Compromise needs to be filed before the IRS issues the CP508C letter in order to prevent passport problems during the offer negotiation period…which can be as long as 18 months.
If the offer is filed after the CP508C letter is issued, the offer has to be accepted and finalized for it to prevent problems.
Challenge the debt amount
The debt the IRS claims you owe can be wrong and often it is.
If you believe that the result of an audit is incorrect or if the IRS has filed returns for you, your debt is likely incorrect and overstated.
It might make sense to challenge the IRS' incorrect returns or ask the IRS to re-consider the audit just because the debt is incorrect…but doing so may end up reducing the debt below the $51,000.00 threshold and save or restore your passport as well.
Use Bankruptcy to reduce the debt
In certain situations, bankruptcy discharges or wipes away your obligation to pay tax debt.
Chapter 7 is ideal here because the discharge takes place just several months after filing as opposed to the chapter 13 which takes 3-5 years.
Innocent spouse relief
Once an innocent spouse claim has been filed and processed, the IRS cant take the passport.
The key to preventing the taking of your passport is to know what your options really are. This usually requires some evaluation/analysis of your financial situation and history. If your'e concerned about losing your passport, it's time to have a professional do that evaluation/analysis and help you decide on a solution.