Can the IRS take my passport?
Seven ways to prevent the IRS from taking your passport
Well, the answer to this question is an indirect yes. If you ask why, it's because the IRS doesn't technically have any right to take your passport. However, this doesn't mean that they cannot work at getting the State Department to restrict your passport.
But you don't have to worry much about this. The only situation where the IRS may resort to taking or restricting your passport is if and when you owe the government lots of taxes, and are not willing to settle your dues.
In other words, it is if you are an offending and irresponsible tax debtor that you risk losing your passport. You are considered to be one if you owe the State Government more than $51,000 in taxes and haven't tried to resolve the problem.
Remember, it's not necessary that you owe the IRS $51,000 in taxes. There are so many penalties and fees that even $18,000 quickly reaches $51,000!
There's no point in taking the risk and letting the IRS grab your passport. Try to reduce the debt to less than $50,000 before the IRS grabs your passport. Trying to pay after they take action won't be helpful.
If they do grab your passport, you will have to pay off your debt in full to get back your passport and be able to travel freely wherever you like.
The IRS will inform you
If you are a seriously delinquent tax debtor, the IRS will first send you a notice about your outstanding tax bill. It's when you don't do anything about your debt that the IRS eventually notifies the State Department to restrict your international travel and passport renewal.
While the IRS can revoke or refuse to let you renew your US passport, there are these seven measures you can adopt to prevent them from doing it:
1. Take action
Don't sit idle once you receive a notice from the IRS. Keep on fighting the case by responding to all letters and notices you receive. File your disputes and ask for as much collection prolongation as possible to get a petition from the tax court.
You basically have to stall for time by delaying the process as much as possible. This delay keeps the system busy for years, while your passport remains with you. Remember, this measure does not help you avoid paying your dues. You should eventually pay it or risk the IRS attempting to revoke your passport.
2. Negotiate for a settlement
Put forward reasonable offers and negotiation to settle your due amount with the Office in Compromise based on your income and expenses. These negotiations can take at least a year or two, where the IRS does not have the right to revoke your passport.
However, remember that Officers in Compromise generally have a ‘cost' on you. This means that there's a fixed number of about 10 years they have to collect your dues from you, failing which the debt usually reduces. This collection statute can be delayed and even stopped by filing a petition with the tax court.
3. Permanent residency in another country
You can always try for permanent residency in a different country before the IRS revokes your passport. It is the IRS travel ban that forces you to stay in the U.S., or to return home if your passport is revoked. However, you aren't forced to return to the US if you have permanent residency in a foreign country.
Anyway, being a permanent resident gives you an edge in the bargaining process. The problem, however, is that you won't be able to travel out of your country of residence, because you don't have any valid passport. You conversely don't even have to return to the United States.
This means you can start negotiating with the IRS from wherever you are. The only hitch here is that you should become a permanent resident before losing your passport. You will have to return home if the IRS charges you before you become one.
4. File for bankruptcy
Filing for bankruptcy is another option worth considering because most income taxes are discharged through it. Of course, this is applicable only in a few conditions.
The income tax fraud has been for than 3 years, if it's not an attempt at tax fraud and if you had filed a tax return to pay the debt at least two years before thinking about filing for bankruptcy. A bankruptcy lawyer will be able to guide and help you out here.
5. Installment agreement
You can also try negotiating to reach an agreement to pay off your debt in installments. It doesn't matter how big your debt may be, making regular payments according to the agreement terms prove that you are not an offender. Paying as little as $300 a month for a million dollar debt can help save your passport.
This installment agreement lets the IRS decertify you and includes fixing a monthly payment plan or opting for a program for people in financial problems.
Once you make an agreement with the IRS they will decertify you and notify the State Department in 30 days' time. You will then be able to travel abroad or renew your passport.
However deciding on the installment agreement is a delicate matter because the payment terms are calculated based on your income, and you are allowed, and not existing expenses.
So if you have a sizeable income, there's a chance of your not getting an installment agreement at all. A tax professional will be able to help you out by deciding on the best agreement for you.