Could Uncle Sam Hold Back Your Travel Plans?

Do you enjoy traveling? If so, you need to listen up. It’s no surprise you need a passport to travel outside the country. But what if I told you your unpaid taxes could keep you from getting or even renewing a passport?

In 2015, Congress enacted a law that requires the state department to deny, revoke or limit your passport use if you have nonpayment of federal taxes. Never heard of this? That’s because it wasn’t really enforced until 2017.

This law applies to anyone who owes in excess of $50,000 or more in taxes, interest or penalties. Whether you own your own business or you are an employee of a corporation, this could be you.

Let’s look at network marketing as an example.

If you’re in network marketing or know someone who’s in the business, you know these people like to travel. Their business allows them to travel freely, not to mention they regularly get offered incentive trips which could take them all around the world.

Remember how I said this applies to people who owe over $50,000 in taxes, interests and penalties? Well, for someone who is successful in network marketing, paying the 15.3% unemployment tax could get them up to that $50k real quick. If you’re curious as to where that percentage comes from check out an article all about it here.

So, imagine getting all excited for your company trip somewhere warm and sunny only to find out your taxes are keeping you from that tropical paradise.

Now, for a quick history lesson.

The Government Accountability Office (GAO), reported that the state department was issuing out too many passports to citizens who have debt. In fact, the amount of tax debt accumulating from these people equaled nearly $6 billion.

The internal revenue code Internal Revenue Code Section 7345 says if you have “seriously delinquent tax debt” it requires the IRS to certify your debt with the state department or action. This basically means the state department must deny passports or even turn down renewal of passports.

You read that right.

Even if you already have a passport and simply go to renew it so you can attend that incentive business excursion, you could be denied a new one. Kiss that Cabo trip goodbye.

Now here’s the kicker with that $50,000, it’s cumulative! That’s right, it’s not just one years worth of taxes. If your total IRS bill exceeds $50,000 over the course of several years, they can deny you.

So first let’s see if you have a potential passport issue

Does your cumulative tax debt equal at least $50,000? If you don’t know, check with your accountant to find out asap.

If so, here are the two things to look out for:

  • Has the IRS mailed you a letter saying they have assessed the debt and filed a federal tax notice for your unpaid debt and all administrative remedies have lapsed or been exhausted?
  • Have they served a levy to collect unpaid amount?

If you can answer yes to either of those two questions, you’re likely at risk and your first step should be to call the National Passport Information Center to see if you can get a passport, or still get your passport renewed.

Quick side note to be aware of…

If you’re unable to get your ducks in a row and take your chances by sending in your passport payment, the US State Department Passport office will not refund your money if you get denied. They will give you a 90 day window to get in good standing with the IRS but otherwise they will keep your payment and you will have to start over.

I gave you the bad news, so let me tell you how you can fix it!

Steps to fix it

First you can try to enter into an installment agreement.

This means you can file a Form 9465 to set up a monthly payment with the IRS. I highly recommend this option if you can do this, it’s your best case scenario.

Here are some options based on what you owe:

Your tax balance is below $50,000

  • You can pay it off over 72 months!
  • The IRS won’t need to file a lien on your property.
  • If you agree to a tax deposit that drafts automatically, your accountant won’t need to do a Collection Information Agreement (which they will thank you for)

Pause for “Nerd language”
A Collection Information Agreement is a full financial report on your personal and business finances. From checking accounts, to your assets, loans, the works!

Your tax balance is between $50,001-$100,000

  • You can pay it off over 84 months!
  • If you agree to an automatic tax deposit your accountant won’t need to do a Collection Information Statement either.
  • The IRS won’t need to file a lien on your property.

You are over the $100,000 mark

  • You will need to provide a full Collection Information Statement in order to get the installment agreement.
  • And this might mean the IRS could file a lien.

The next thing you can try to do is request innocent spouse relief.

This means you and your spouse could claim you hold separate finances and you shouldn’t be held responsible for their taxes. This one is tougher and I can’t say I’d recommend it as a first option.

You can also try to get an Offer In Compromise (OIC) with IRS.

Basically, this says, “I can’t pay the full amount, let’s strike up a deal.” This process is a longer one and there are no guaranteed results from this but sometimes it’s worth a shot.

And lastly, you could request a collection due process hearing from IRS.

Curious how to do this? Watch this video about what a collection due process entails.

Before you do anything, try working with your accountant to figure out where you stand with the IRS and begin to put a plan together so the National Passport Association will grant you your passport.

As a final note and idea, I would recommend looking into different lines of credit (think home equity loan or a business line of credit) in order to get your taxes below the $50,000 amount. Doing this can be helpful because this type of loan creates a deductible interest expense.

So, whether it’s a family trip to London, a business trip to Vancouver or an incentive trip to the Amalfi Coast, don’t let taxes stand between you and your journey.