Does your business depend on the international travel of its employees? What would happen to your business if one of your key employees couldn’t get a passport? Beginning this year with the FAST Act, the State Department may deny a passport application or revoke an individual’s existing passport if that individual has a “seriously delinquent tax debt”—essentially a tax debt of more than $50,000. What can you do to protect your business?
The (Sad) Story
Here’s what is likely to happen if one of your employees has a “seriously delinquent tax debt”:
The IRS will certify to the State Department that your employee has a “seriously delinquent tax debt”;
Your employee will get a copy of the certification (and may or may not appropriately attempt to resolve the debt);
Your employee may arrive at the airport for an international flight and won’t get past security as the State Department will have revoked your employee’s previously issued passport;
Your employee may try to get a new passport or renew an expired passport, and the State Department will deny the application;
Your business may experience a costly disruption as that employee scrambles to get a passport by paying the tax debt, requesting a collection due process hearing or innocent spouse relief, or convincing a judge that the certification was erroneous.
While international businesses that require employees to authorize them periodically to retrieve their tax account transcript from the IRS would probably be going too far and asking for trouble, there are less intrusive options available to employers who wish to mitigate the risk of business interruption. In a memorandum to their employees, businesses could make employees aware of the new ability of the State Department to deny or revoke passports for “seriously delinquent tax debt” and include a requirement for certain employees to maintain a valid passport in the employee handbook. A more direct approach would be to have employees traveling internationally certify periodically that they maintain a valid passport and have neither “seriously delinquent tax debt” nor knowledge of any reason for the State Department to revoke their passports. Finally, a stronger approach would be to include in employment agreements of employees traveling internationally a provision making the holding of a valid passport a condition of employment. If the State Department revoked such employee’s passport, the employee would be in breach of the employment agreement.
The Fine Print
Note that the $50,000 threshold (adjusted annually for inflation) can be met even if the actual tax debt is less than $50,000 because penalties and interest are included in the threshold determination. But before calling AP&S in a cold sweat, note these important points about what’s considered a “seriously delinquent tax debt”:
The IRS must have issued an assessment for the debt.
The IRS must either issue a levy or file a notice of lien for which the debtor’s administrative rights have been exhausted or have lapsed. So, an IRS garnishment of the internationally traveling employee’s wages should make a yellow flag go up.
Tax debts being paid under an offer-in-compromise or an installment agreement aren’t considered “seriously delinquent.”
Tax debts which cannot be currently collected because (1) a collection due process hearing has been requested or is pending or (2) innocent spouse relief has been requested are also not considered “seriously delinquent.”
The Parting Shot
It’s worthwhile to note that the FAST Act adds to the already existing power of the State Department. If an applicant owes more than $2,500 in child support and for other reasons, the State Department may also refuse to issue, limit, or revoke a passport.
Welcome to the new era of tax information sharing!