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The IRS has powerful debt collection tools that greatly exceed those available to most nongovernmental creditors. Liens, levies, wage garnishments, and asset seizures become available to the IRS with fewer procedural protections for the debtor than would be present when a general commercial creditor attempts to collect a debt.

But in addition, in late 2015 President Obama signed a transportation funding bill that incidentally provided another debt collection mechanism to the IRS. The new law permits the US government to revoke the passport of any US person whose federal tax debt exceeds $50,000.

Before getting to the $50,000 threshold, the taxpayer would, of course, be entitled to existing methods of challenging a proposed tax assessment, including the right to petition the US Tax Court.  But in determining whether a taxpayer has crossed the $50,000 threshold, the IRS is permitted to take into account add-ons to tax liability, such as interest and penalties.

Despite the authorization granted by the new law, the IRS’s enforcement policies on passport revocation have not yet become clear. In February 2016, members of Congress appealed to the State Department to “consider the unique circumstances of overseas Americans” before taking steps to revoke a passport under the new rules. There should be additional guidance on formal policies in the next few months. In the meantime, we have one more issue to discuss with our clients who find themselves falling behind on their tax payment obligations.

This article was originally published in the ACBA Business Section’s May Newsletter. Section membership is only $35 and gets you great discounts on CLEs.

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