With a busy travel season ahead of us, the IRS recently warned federal tax debtors about a little-known law affecting taxpayers who need passports.

In January 2018, the IRS began to implement new procedures for taxpayers with “seriously delinquent tax debt.” The law requires the IRS to notify the State Department about taxpayers with a tax debt of $50,000 or more. The threshold for 2019 is $52,000. And if you are a debtor and have a valid passport, the State Department can limit your travel outside the U.S. or revoke it altogether.

Two other weapons the IRS has in its arsenal against debtors are tax liens and levies, and the tax collection agency isn’t afraid to use them.

Tax Liens

If you owe tax because you have a disagreement with the IRS and refuse to pay or simply neglected or ignored your tax liability, the IRS can issue a lien on your property. This action establishes the IRS’ priority over other creditors. The lien will remain in effect until you pay off your tax debt, the statute of limitations expires or you qualify for resolution under the IRS Fresh Start initiative.

Typically, the lien is attached to personal property like real estate, securities and financial accounts or business property. This doesn’t restrict your right to sell the property, but it could adversely affect your credit. In fact, the lien could haunt you for years to come. Overall, it’s in your best interests to work out a payment plan with the IRS.

Tax Levies

Alternatively, the IRS can issue a levy to seize and sell your property to satisfy your tax obligations. This option applies to the same types of property as tax liens. In some rare cases, the IRS may even seize and sell your car or home, although this is usually limited to instances, such as when:

  • You are hiding assets;
  • You have failed to properly remit payroll taxes; or
  • You have committed tax fraud.

The IRS must observe strict notification requirements. If your property is being seized, you may be able to secure a release by resolving the tax debt immediately or by demonstrating economic hardship.

Similarly, the IRS can garnish your wages if you owe money to the IRS. Following proper notification, the IRS contacts your employer and arranges to have part of your wages allocated toward paying your back taxes. The IRS won’t take your entire paycheck, but it determines an amount that may leave you with little left for the monthly bills. The garnishment continues until your debt is paid off.

Aside from paying a tax debt in full, you can avoid serious problems by meeting your tax obligations through an installment plan agreed to by the IRS or by making an offer in compromise (OIC). With an OIC, you may be able to settle your debt by paying less than the full amount owed, based on IRS calculations for what you can reasonably pay. There are other options, so be sure to check with your tax professional.

You don’t have to wait for the IRS to come knocking at your door to spring into action. Be proactive about paying the taxes you owe—it will give you peace of mind, not to mention get you to your destination on time with your passport intact. Your tax advisors can provide you with the assistance you need to settle your tax obligations.

Questions about this blog or other Tax Planning and Preparation questions? Please contact Teri M. Kaye, CPA, Partner-in-Charge, Sunrise Office, at 561-886-5262 or use our contact form below.