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When Can the US Government Revoke Your Passport for Tax Evasion

By Ashwani Shoda

Published on 24 Sep 2024 7 min read

In a world where travel opens doors to new opportunities and experiences, the thought of losing your passport can feel like a nightmare—especially if you’re an American citizen living abroad. But what happens when the thrill of globetrotting collides with tax obligations? 

For many Americans living abroad or earning income from out-of-country sources, navigating the treacherous waters of international taxation can feel like walking a tightrope — one misstep, and you could find your precious passport in jeopardy. 

Getting your passport revoked is like being struck by lightning. Just because it’s unlikely doesn’t mean it won’t happen. Luckily, doola has everything you need to make sure your books are accurate and your taxes are filed on time.

Whether you’re contemplating your tax readiness or simply wish to keep traveling abroad, our solutions will help you avoid passport revocation and tax evasion without breaking a sweat!

Join us as we dissect the complex relationship between taxes and travel, uncovering crucial insights that will help you safeguard your ability to roam freely while ensuring you’re on solid fiscal ground. 

How Having a Revoked Passport Affects You

With a revoked passport, you will not be allowed to leave or enter any country, including the United States. This can create significant obstacles for individuals who have important business or personal reasons for traveling abroad.

Many employers now require candidates to have valid passports as part of their screening process. Without a valid U.S. passport, it may be challenging to secure job offers that involve international travel or relocation.

Another challenge that individuals with revoked passports may face is limitations on financial transactions and banking activities. Banks often require a valid ID, such as a passport, before opening a business bank account or conducting international wire transfers.

The situation becomes worse if your U.S. passport is revoked while abroad. You may also encounter issues returning home to the United States without valid identification documents.

The Crack Down on Tax Delinquents

The U.S. federal government has been cracking down on tax evaders, implementing stricter enforcement measures against those with outstanding delinquent tax debt or who are actively engaging in illegal tax activities.

Delinquent tax debt is unpaid federal tax debt that incurs interest and penalties for a long time. On the other hand, tax evasion refers to the illegal activities of intentionally not paying your taxes or underreporting income to pay less than what you owe. 

While this may seem like a minor offence, the Internal Revenue Service (IRS) considers it a serious crime and comes down hard on you. In some cases, they have even stripped U.S. passports from Americans with certain tax delinquency consequences.

In 2015, Congress passed the Fixing America’s Surface Transportation Act (FAST Act). This act authorized the State Department to deny or revoke passports for taxpayers with large federal debts—more than $62,000. 

This amount includes aggregate total federal tax liabilities, plus interest and penalties and can quickly add up for those who have been evading taxes for years. However, the State Department will not revoke your passport out of the blue.

They typically use this enforcement mechanism as a sort of last-ditch effort to collect unpaid tax levies. The IRS will first notify you via mail of any outstanding tax debts and provide you with an opportunity to resolve their tax issues before taking action.

Once these conditions are met, taxpayers will receive a letter from the State Department informing them that their passport has been denied renewal or revoked. 

This means that their current passport will be invalidated, and they will not be able to use it for international travel.

Understanding the Law: When Can You Lose Your Passport

If you are wondering whether the IRS passport restrictions are a serious threat, the answer is a resounding yes! This can come as a shock to many individuals who may not realize that their pending tax bill could jeopardize their ability to travel internationally. 

Tax evasion involves deliberately manipulating or falsifying information on tax returns to avoid paying the taxes owed. The IRS looks for intentionality, concealment, and manipulation of financial records when determining whether an act constitutes tax evasion. 

It involves intentionally concealing or misrepresenting income, assets, or deductions on your tax returns. This can include underreporting income, inflating expenses or deductions, failing to file taxes altogether, or transferring assets to avoid taxation.

Intentionality is a key factor in determining whether an act constitutes tax evasion. So, simply making a mistake on your tax return does not automatically constitute evasion. However, many more actions may be considered as forms of tax evasion. 

One common example is hiding income from offshore accounts. While individuals are required to report all income earned abroad on their U.S. tax returns, some may try to conceal this income in offshore bank accounts in order to avoid paying taxes on it.

Another form of tax evasion is claiming false deductions or credits. This includes falsely claiming dependents or exaggerating business expenses for personal gain.

Taxpayers who engage in cash transactions also come under the radar. Whether they receive payments under the table or do not report all cash transactions accurately on their return, these actions can be seen as attempts to evade taxes.

Not filing taxes altogether is also considered a form of tax evasion. Failure to file a tax return when required could result in both civil and criminal charges if the IRS determines it was done willfully.

In addition, illegally transferring assets between family members or businesses may also be considered a technique for evading taxes. These transfers may decrease one’s taxable estate and ultimately reduce the amount of taxes owed upon death.

It’s important to note that even unintentional mistakes on tax returns can be perceived as evasion, particularly if they are repeated consistently over multiple years. This is why it’s crucial to regularly review and audit your taxes to ensure accuracy and avoid any potential red flags.

However, some exceptions and limitations under this act may allow individuals with serious tax debt issues to still obtain or renew passports under certain circumstances.

Steps Taken by the IRS Before Revoking a Passport

The passport revocation for tax evasion typically begins after a taxpayer fails to respond to multiple notices. However, before initiating such extreme measures, the IRS follows specific steps to address the tax delinquency consequences.

Their first step is to send a notice informing the taxpayer of an outstanding tax liability. This notice also includes information about penalties and interest that have accrued on the debt. It typically gives the taxpayer 30 days to respond and take action to resolve the issue.

If there is no response from the taxpayer after the initial notice, they will send a reminder notice stating that they have not received any payment or communication regarding the outstanding tax debt. 

If the taxpayer does not resolve or communicate after 30 days of receiving the second notice, the IRS will issue a final notice of intent to levy. This serves as an official warning that the enforced collection actions may begin without further notice or appeal rights.

After sending out a final notice, they send CP508C notices directly to individuals who owe over $62,000 in back taxes (including penalties and interest). This letter advises them that they have seriously delinquent tax debts and outlines what those debts entail.

Following receipt of CP508C Notices, the IRS will send a Notice CP508C that provides information on how to challenge or contest the tax debt. If nothing is done by this time, then notices of certification are sent to both the U.S. Department of State.

After receiving an official notice, Federal law requires that the Secretary of State identify individuals who continue not to pay their taxes and act accordingly. The identity is submitted for denial, revocation or limitation of passports as appropriate.

The IRS has strict penalties for failure to file or pay taxes on time. Therefore, make sure you keep track of filing deadlines and seek help from a tax professional if needed.

How to Reverse a Revoked Passport

The most straightforward way to reverse a revoked passport is by paying off any outstanding tax debt. Once your balance is settled, you can request for the revocation to be lifted and submit proof of payment to the authorities. 

If you are unable to pay off your entire balance at once, you can enter into an installment agreement with the IRS. This allows you to make smaller monthly payments towards your tax debt until it is fully paid off. 

You can also opt for an Offer in Compromise (OIC), a settlement agreement between you and the IRS in which a reduced amount of tax liability is accepted as full payment for outstanding debts. 

In certain cases where one spouse was solely responsible for incorrect or underreported taxes on a joint return, innocent spouse relief may be available. This means that only one spouse will be held liable for any penalties or interest incurred by unpaid taxes.

Dealing with passport revocation due to tax evasion and debts can be incredibly stressful, especially if you have upcoming travel plans. 

Book a consultation with our experienced tax professionals, who can help you navigate through these complex issues and ensure a timely resolution.

Be on the Right Side of the Law with doola

As a U.S. citizen, it is your responsibility to file and pay your taxes on time. However, keeping track of tax laws and regulations can be overwhelming, not to mention the consequences of failing to comply with tax laws, which can lead to hefty fines or even legal action. 

That’s where doola becomes your saving grace. Our comprehensive tax filing services cover everything from preparing personal income taxes to business taxes – including state and federal returns. 

But filing taxes isn’t just about meeting your obligations as a citizen; it’s also about taking advantage of deductions and credits that you might be eligible for. doola bookkeeping is designed to keep your financial records organized and up-to-date throughout the year. 

This also ensures that all necessary information is readily accessible when it comes time to file your taxes. By entrusting us with your bookkeeping needs, we eliminate any chances of mistakes or discrepancies that could trigger an audit by the IRS.

Let doola handle everything for you, so you can rest assured that your taxes are being filed accurately and on time, leaving you with more time to focus on your business.