Like many countries rules for being a citizen, an individual is a US citizen either because they were born in the United States or because they have become a citizen through the process of naturalization. Either way, once a US citizen you are entitled to the rights, privileges and benefits of being a US citizen. One of those privileges is the right to acquire a US passport.
Recently, and perhaps not too surprisingly, the ability to maintain this privilege may be at risk for those US taxpayers who have a “seriously delinquent tax debt”. So where does the connection between a tax matter, within the jurisdiction of the IRS and a State Department matter, arise? Pursuant to the Surface Transportation Reauthorization and Reform Act (“STRR”) of 2015 which went into effect on January 1, 2016.
The newly enacted STRR Act connects the Secretary of State’s authority over the status of a US person’s passport to their outstanding US tax debt in two general ways. First, by granting the Secretary of State the power to revoke validly issued passports of those US taxpayers who have a seriously delinquent tax debt. Second, by being required to deny an application to issue a new passport or to renew a passport for those US taxpayers who have a seriously delinquent tax debt. When considering the triggering concept for this authority, one should not take comfort in the use of the word “seriously”. The threshold of what is considered a “seriously delinquent” tax debt is $50,000 US. For a more thorough article, see Kenton J. Klaus and Elizabeth McCoy, Deloitte Tax LLP, Passport Control: New Legislation in the US Provides the IRS with Another Tool for Collecting Delinquent Taxes, which first appeared in Wolters Kluwer, Global Tax Weekly, Issue 176 and was republished in Wolters Kluwer, Tax Topics, April 7, 2016, Number 2300.
I have often quipped with clients and colleagues that it will not be long before US customs officers are equipped with information about the tax compliance of US persons. It appears that, that time may not be too far away. If a US person’s passport can now be revoked for outstanding tax matters, presumably the next step will be for US customs officers to be granted the authority to detain a US person at the border if they have a seriously delinquent tax debt.
One can only surmise that the policy rationale for legislation such as the STRR Act, is that the US government is creatively trying to incent US taxpayers to become compliant. Presumably though, the underlying rationale is a need for the US government to collect outstanding tax dollars. Unfortunately, this may have the opposite consequence of acting as the tipping point for those US persons who may be reconsidering the benefits of US citizenship.