“Seriously Delinquent” Tax Debts May Impede Your Travel Plans

The world has gone global, and American citizens travel frequently to various parts of the world. When traveling abroad, carrying a valid passport as a proof of US citizenship is essential for routine activities such as foreign exchange transactions or checking into your hotel. It may come as a surprise, but if you have a ‘seriously delinquent tax debt’, you may have to put your travel plans on the back burner. The number of IRS tax defaulters is increasing sharply, and many of them are still unaware of the fact that their unpaid debts can jeopardize their travel plans.

In 2014, there were about 12.4 million delinquent American taxpayers throughout the world. Combined, the owe nearly $131 billion to the government, in the form of taxes, interest, and penalties. As of January 1, 2016, the IRS enforced much more stringent laws by funding bill to track delinquent taxpayers by authorizing the State Department to deny or revoke their US passports. As a result, many Americans are finding themselves at the receiving end of an impending travel ban. Let’s delve deeper into the impact of being tracked.

Impact on Your Passport

Forcing delinquent taxpayers to forfeit their passports is one of the strongest laws that the IRS has enforced to prevent defaulters with a ‘seriously delinquent’ tax debt’ from evading taxes and pending debts. The newly funded bill authorizes the Secretary of State to revoke, limit or deny passports to individuals with a tax liability of $50,000 or more. This new rule is not limited to American citizens; it is applicable to expats as well. The Fed’s Foreign Bank Account Report (FBAR) and Foreign Asset Tax Compliance Act (FATCA) mandates the non-resident Americans to report every year on the financial accounts they are holding outside of the US. It also requires foreign financial institutions to report the financial accounts held by American citizens or entities that have a substantial share of a US taxpayer, to the Federal Government.

Renouncing Nationality Won’t Help

Many American citizens, in a bid to escape their IRS liabilities, renounce their nationality, hoping to start afresh overseas. Some surrender their nationality to take up the citizenship of other countries that have relatively relaxed tax laws. Contrary to common belief, surrendering your nationality won’t help you get rid of your tax liabilities. The IRS has highly sophisticated mechanisms to track defaulters all over the world, especially in US-allied nations. No matter how far you go, the IRS will be able to track you.

The Way Forward

Tax filing, undoubtedly, is a complex process that may force you to delay the process, and this, in turn may lead to serious issues such as the instances we discussed. If you want to have a clean slate of tax liabilities, and ensure timely processing of the required paperwork, get in touch with one of our tax law experts. We can also help you resolve an existing issue and have your passport reinstated, provided you are ready to comply with the regulations and follow our advice.