Wednesday

Nicholas Hartney, EA | IRS Attempting to Block Passports For People Who Owe Back Taxes

You can send your thank you cards to Harry for this one.
The IRS and Justice Department are working together to catch ex-pats behind on their income taxes. Even though there are no longer debt prisons they can still arrest people behind on their taxes when they land on U.S. soil. Sen. Harry Reid (D-Nev.) and a handful of others in Congress think the government could do more to apprehend people on the move and even prevent them from obtaining or leaving the States in the first place. In 2012, the Government Accountability Office reported on the potential for using the issuance of passports to collect taxes.
The thought is to restrict passports and travel until you pay the IRS what they say you owe (including penalties and interest). Several successive proposals have been defeated for now. Some say the right to travel is fundamental, practically constitutional.
According to an introduced Senate Bill 1813, an idea to punish tax debtors, the State Department would be allowed to revoke, deny or limit passports for anyone the IRS certifies as having a seriously delinquent tax debt in an amount in excess of $50,000.
As an enrolled agent and someone who has represented taxpayers for over 10 years I can foresee major problems with this from the taxpayer's perspective, starting with lack of due process.


The IRS is notorious for assessing people an arbitrary tax bill by having the IRS computer process and prepare what are called Substitute-For-Returns (S.F.R Sec. 6020(b)) if you fail to file an income tax return.
IRC 6020(b) states, "If any person fails to make any return required by any Internal Revenue Law or regulation made there under at the time prescribed therefore, or makes, willfully or otherwise, a false or fraudulent return, the Secretary shall make such return from his own knowledge and from such information as he can obtain through testimony or otherwise."
When the IRS prepares an SFR they will give you the lowest possible deductions and if you have a 1099-MISC issued to you they will tax it at 100%, i.e. they will not consider any expenses you had to offset the total taxable income. The return will be processed "in the best interests of the Service". On top of that they will assess failure to file and failure to pay penalties (which max out at 50% of the tax due), then apply compounded daily interest! Before you know it, a few years of unfiled tax returns or perhaps even if a new 1099 is issued that you either forget about or one is issued under your taxpayer ID in error, $50,000 can add up very fast, and when dealing with the IRS you are guilty before being proven innocent. If passed this law will hurt a lot of innocent people.
Now with Harry Reid announcing retirement a mere few months after his workout injuries perhaps this no-travel, no-passport idea will lose steam and die...
And before I forget, Happy Retirement Harry!