Congress amended the code to allow the IRS to certify passports. This added another tool the IRS can use to get those with IRS back taxes to contact the IRS and, in some cases, to pay the IRS.
As with most new laws, there are a number of open questions about how and when the passport certification is valid and will be upheld by the courts.
The recent Matterson v. Commissioner, T.C. Memo. 2022-118, case provides an opportunity to consider one of the open questions about the validity of IRS passport notices.
Facts & Procedural History in Mattson
The facts in the Mattson case are common. The taxpayer did not file federal income tax returns for several years. The IRS prepared a substitute for return (“SFR”) for each year to record the taxes it thought were due.
The taxpayer did not respond to the SFRs, so the tax was assessed.
The IRS then issued a notice of levy and a lien notice to the taxpayer. The taxpayer responded to these notices by asking for a collection due process hearing with IRS Appeals.
IRS Appeals held the CDP hearing and sustained the proposed IRS levy and lien. The taxpayer filed suit in U.S. Tax Court.
About IRS Passport Certification
Those who owe back taxes to the IRS may get a letter from the IRS about their passport. The IRS uses Notice CP508C for this purpose. The Notice indicates that the IRS believes that your IRS income tax account meets the criteria to send the certification to the State Department.
The criteria are set out in Section 7345 of the tax code. We’ll go through these criteria below. For now suffice it to say that once the State Department receives this notice, it will not renew your passport or issue you a new passport.
Criteria for Passport Certification
The IRS is able to issue the above-referenced notice regarding your passport if the following requirements are met:
- You have a federal tax liability that has been assessed;
- The tax balance exceeds $50,000 (adjusted for inflation);
- The balance is unpaid and legally enforceable; and
- The balance is the subject of a filed lien notice or a completed levy.
Each of these elements has to be met for the IRS to issue this passport notice. If the IRS issued the notice in error, the law says that the IRS must reverse its certification and notify you and the State Department.
The Facts & the Open Question
The court had little difficulty finding that most of the elements required for the IRS passport certification were met. The IRS prepared SFRs and the taxpayer did not respond, so the tax was assessed and was due and owing. The balance was unpaid and the IRS issued a levy and lien notice.
The taxpayer challenged the amount of the balance. He argued that his tax liability was under $50,000 when the applicable penalties were not considered. The court agreed that the $50,000 includes penalties–and even noted that the tax was slightly over $50,000 even without penalties.
While not addressed in this case, the case highlights one of the open questions about IRS passport certification. Specifically, with the third element above that the debt is legally enforceable, what if the taxpayer had filed corrected returns and those returns were processing, pulled for audit, etc.? Put another way, what if the taxpayer could demonstrate that the tax–even if just a few dollars–was not owed? A tax that is not owed cannot be “legally enforceable.” Can filing a corrected tax return just prior to or even after the IRS passport notice result in the IRS passport notice being invalid?
The courts have concluded that taxpayers cannot challenge the underlying tax debt in this type of proceeding; however, the court has provided another avenue for challenging these certifications.
The Takeaway
It is not clear whether a taxpayer who takes quick action upon receipt of an IRS passport notice can invalidate the notice by filing tax returns or amended tax returns. Those who receive IRS passport notices should contact a tax attorney to discuss their options.
We are tax attorneys serving clients in Austin, Texas and we can help you with your IRS passport notice. Contact us today to see how we can help.