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May 23, 2011 - Phil Hodgen

No passport until you pay your taxes?

The Government Accountability Office has recently issued an analysis about passports and tax liabilities.  It’s scary.  Briefly, it creates a roadmap for future Federal passport policy.  The desired result of this policy to keep you from leaving the United States until the IRS says it is OK for you to go.

Read (warning:  PDF) “Potential for Using Passport Issuance to Increase Collection of Unpaid Taxes,” GAO Report dated March, 2011.

I quote from the executive summary:

What GAO Found

State issued passports to about 16 million individuals during fiscal year 2008; of these, over 224,000 individuals (over 1 percent) owed over $5.8 billion in unpaid federal taxes as of September 30, 2008. State is not authorized to restrict the issuance of passports to individuals because they owe federal taxes. In addition, federal law does not permit IRS to disclose taxpayer information, including unpaid federal taxes, to State officials unless the taxpayer consents. In contrast, federal law permits certain restrictions on the issuance of passports to individuals, such as individuals owing child support debts over $2,500. For 2008, the estimated amount of unpaid federal taxes is likely understated because it excludes individuals who have not filed tax returns or underreported income. In addition, according to State officials, State cannot compel a passport applicant to provide a Social Security Number (SSN). As a result, State’s records sometimes did not contain a valid SSN, which is necessary to match passport data to IRS data. Also, the number of passport holders and dollars owed only includes 1 year of passports that were issued, substantially understating the total tax debt for all passport holders.

GAO judgmentally selected 25 passport recipients to investigate for abuse related to the federal tax system or criminal activity. Of these cases, at least 10 passport recipients had been indicted or convicted of federal laws. In addition, IRS assessed trust fund recovery penalties on several passport recipients when the individual did not remit payroll taxes to the federal government. Rather than fulfill their role as trustees of this money and forward it to IRS, they diverted the money for other purposes. Willful failure to remit payroll taxes is a felony under U.S. law. Some of these individuals accumulated substantial wealth and assets, including million-dollar houses and luxury vehicles, while failing to pay their federal taxes. At least 16 passport recipients traveled outside the country while owing federal taxes. At least 4 passport recipients resided in another country at the time of GAO’s investigation. Two individuals used the identities of deceased individuals to fraudulently obtain passports and then used these passports to travel to Mexico, France, and Africa. In one case, the unpaid tax debt belonged to a deceased individual, and in the other case, the debt was incurred by the imposter. We referred these 2 cases to IRS for further investigation.

If implemented, the United States will become a nation-equivalent of a company town. We will be indentured servants–we do not have freedom to leave the United States until the fief lord says we can.

The conclusion to the report says:

IRS enforcement of federal tax laws is vital—-not only to identify tax offenders—-but also to promote broader compliance by giving taxpayers confidence that others are paying their fair share. As federal deficits continue to mount, the federal government has a vital interest in efficiently and effectively collecting the billions of dollars of taxes owed under current law. Federal law already allows the linkage of debt collection with the passport issuance process in certain areas, including for certain outstanding State Department debt and child support enforcement. [The “nose in the tent” is usually some variant on the “Think of the children!” theme, just as we see here. Ed.] The question is whether this is a public policy strategy that might have broader application in other areas, such as federal tax debt. If so, legislation would be needed to facilitate screening for outstanding federal tax liability with linkage to the passport issuance process. Such legislation could have the potential to help generate substantial collections of known unpaid federal taxes and increase tax compliance for tens of millions of Americans holding passports. Appropriate criteria and safeguards would need to be developed and applied, such as to ensure individual privacy, minimize undue approval delays, and permit appropriate exemptions. Related programs currently operating can serve as a starting point for such considerations.

Thanks JB for the email.

Conclusions

  • This is not the law now, but consider this as an official whack with the cluestick.
  • Vote carefully.
  • If you’re going to give up your U.S. citizenship, do it sooner rather than later.

 

Americans Living Abroad Expatriation Voluntary Disclosure