United States: Beginning January 1, 2016: File Your US Tax Return Or Risk Losing Your US Passport

US citizens living outside the United States will need to become even more vigilant about filing US taxes and having a US Social Security number starting Jan. 1, 2016. The alternative will be to risk losing one's passport under a new section of the Internal Revenue Code.

After several failed attempts in the past few years to enact a similar law, Congress on Dec. 3, 2015, passed a highway funding bill that gives the IRS and State Department some significant new powers: under new IRC § 7345, the IRS gets the ability to share information on delinquent tax accounts with the State Department and the State Department gains the authority to deny or revoke the passports of US citizens who have over $50,000 in tax debt or no Social Security number associated with their passport.1 President Obama signed the bill into law on Dec. 4, 2015, and it takes effect Jan. 1, 2016.2

Groups representing US citizens living outside the United States and the press have, appropriately, focused on the State Department's new power to deny and revoke passports when a US citizen has an outstanding tax debt of more than $50,000.3 Congress has been contemplating this kind of law for several years (Moodys Gartner Tax Law first discussed on one such proposal in 2012), so the fact that the provision finally made it from Capitol Hill to the Oval Office is important news.

These commentators have astutely pointed out that both a lack of clarity on how the statute will be enforced and ambiguities in § 7345's use of the term "seriously delinquent tax debt" may mean that many expatriate Americans and dual citizens will be caught unawares when the State Department revokes or refuses to renew a passport because of a tax debt. Fifty thousand dollars in US tax delinquency is a relatively low monetary threshold if penalties and interest are included,4 and penalties can add up quickly for US citizens who have not filed required information returns for their non-US bank accounts, investments, and businesses.5 Further, the IRS sometimes has difficulty contacting taxpayers not served by the US Postal Service, meaning potentially that liens could be filed without taxpayers knowing it.6 Ultimately, constitutional due process protections and the IRC's "last known address" rule7 may protect against passport denial or cancellation in the case of inadequate notice, but that is unlikely to be of much comfort to someone who needs to use his or her passport while interagency problems are being sorted out.

All these points should be added to the list of reasons why US citizens must be sure that they are correctly and annually filing US tax returns no matter where in the world they live. It is also worth emphasizing that the Social Security provisions first proposed in May 2015 are also in the highway bill as passed. This part of the proposed law has received significantly less coverage, but still poses the same potential problems for US citizens living outside the United States as those analyzed by Moodys Gartner Tax Law earlier this year. Indeed, the SSN requirement could potentially affect many US citizens against whom the IRS has never filed a lien. US citizens who need to use their passports should not think that the new law is inapplicable to them simply because they have never received notice of tax debt from the IRS.


1 Sec. 32101, H.R. Res. 22, 114th Cong. (2015).

2 Alexander Lewis, "New Law Will Revoke Passports for Delinquent Tax Debts," Tax Notes, 7 Dec. 2015.

3 See, e.g., Laura Saunders, "Americans: Pay Your Taxes—Or Lose Your Passport," Wall Street Journal, 20 Nov. 2015, http://www.wsj.com/articles/americans-pay-your-taxes-or-lose-your-passport-1447971424; William Hoffman, "Congress Passes Highway Bill With Tax Debt, Passport Provisions," Tax Notes, 4 Dec. 2015.

4 Robert W. Wood, "IRS Poised to Veto Passports," Forbes, 2 Nov. 2015, http://www.forbes.com/sites/robertwood/2015/12/02/irs-may-start-stamping-passports-when-you-pay-your-taxes.

5 Form 5471 (Information Return of US Persons With Respect to Certain Foreign Corporations), for example, carries a $10,000 annual failure to file penalty, as does Form 8938 (Statement of Specified Foreign Financial Assets) and a number of other forms often required of US taxpayers who live in other countries.

6 Press Release, American Citizens Abroad, American Citizens Abroad Urges Congress to Reject Tax Collection Provisions in Highway Bill Tied to Americans' Passports (2015), https://americansabroad.org/files/2514/4847/6247/passport-provision-pr.pdf.

7 US Const. amend. V, IRC § 6212.

Moodys Gartner Tax Law is only about tax. It is not an add-on service, it is our singular focus. Our Canadian and US lawyers and Chartered Accountants work together to develop effective tax strategies that get results, for individuals and corporate clients with interests in Canada, the US or both. Our strengths lie in Canadian and US cross-border tax advisory services, estateplanning, and tax litigation/dispute resolution. We identify areas of risk and opportunity, and create plans that yield the right balance of protection, optimization and compliance for each of our clients' special circumstances.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Events from this Firm
18 Oct 2017, Webinar, Calgary, Canada

The “consultation period” for the July 18, 2017 Canadian private corporation tax proposals ended on October 2, 2017. Where do practitioners and their clients go from here?

19 Oct 2017, Seminar, Ottawa, Canada

On Thursday, October 19, 2017, Moodys Gartner Tax Law will present a complimentary seminar on the main topics of interest in consideration of renouncing your US citizenship.

20 Oct 2017, Seminar, Hamilton, Canada

On July 1, 2014, the US’s Foreign Account Tax Compliance Act (FATCA) went into effect, and as a result, it will become increasingly difficult to renounce your US citizenship for the “right reasons” and avoid any negative consequences.

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