Taxpayer Brings Constitutional Challenge to Purported Link Between Tax Debt and Passport Denial

Mary F. Lundstedt, Esq., Associate

In 1958, the Supreme Court affirmed that an individual's right to travel internationally is a liberty right, unable to be abrogated without due process of law under the Fifth Amendment.[1] Additionally, in 1948, the United Nations recognized "[e]veryone has the right to leave any country, including his own, and to return to his country."[2] Today, the Internal Revenue Service (IRS) and State Department continue to aggressively work in tandem to effectively deprive certain taxpayers of this liberty right to international travel. Remarkably, while hundreds of thousands of taxpayers are confronting this reality, only a miniscule number of them are challenging the government's actions in court yet.

In this article, we briefly consider how we got here, and then highlight the case of one taxpayer who is fighting back and refocusing attention on what's really at stake. While the United States has an interest in collecting taxes owed, that interest must be balanced with an individual's protected rights. Taxpayers and their attorneys must carefully consider this balancing act and prevent an overreach by the IRS-which collects mechanically, automatically, and impersonally. One would be hard-pressed to find a tax practitioner who could not relay a client's tale of woe wherein the IRS machine itself created the problem by assessing an erroneous amount, or where a third-party was at fault for issuing a fraudulent Form 1099. The ever-increasingly depersonalized IRS approach to collection, too often resulting in examples such as these, should give further pause to those who believe that, in the context of linking tax debt to the right to international travel, the scales of justice are balanced.

Background

In 2011, the Government Accountability Office (GAO) issued its GAO 11-272, Federal Tax Collection, Potential for Using Passport Issuance to Increase Collection of Unpaid Taxes, (March 2011) (GAO Report). The GAO Report presented research indicating that the State Department "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."[3] The GAO Report concluded that new legislation "linking federal tax debt collection to passport issuance" in order to boost taxpayer compliance.[4]

At the time, the GAO Report's suggestion of linking tax debt to passport issuance sparked so much controversy that it went nowhere fast. However, four years later, Congress managed to pass provisions creating such link with almost no debate whatsoever.

Under the Fixing America's Surface Transportation Act (FAST Act), enacted in 2015, the State Department must either deny passport applications or revoke existing passports of those individuals certified by the IRS as having a "seriously delinquent tax debt."[5] An individual's tax debt is "seriously delinquent tax debt," if:

  • It is an unpaid, legally enforceable federal tax liability;[6]
  • The IRS has assessed the liability;[7]
  • The assessed liability exceeds $50,000;[8] and
  • The IRS either filed a notice of federal tax lien per Internal Revenue Code (IRC) §6323,[9] or levied per IRC §6331 with respect to the liability.[10]

However, some statutory and IRS discretionary exceptions exist. Under IRC §7345(b)(2), "seriously delinquent tax debt" does not include, (1) a liability being paid timely pursuant to an installment agreement or an offer-in-compromise, and (2) a liability for which a collection due process (CDP) hearing or innocent spouse relief request is pending. Discretionary exceptions may be found in the Internal Revenue Manual sections 5.19.1.5.19.4 (12-26-2017) and 5.1.12.27.4 (12-20-2017), including, but not limited to debt:

  • that is currently not collectible (CNC) due to hardship
  • resulting from identity theft
  • belonging to a taxpayer in bankruptcy
  • that is included in a pending Offer in Compromise
  • that is included in a pending installment agreement

Barring application of any exceptions described above, the IRS will send a seriously delinquent taxpayer a Letter CP508, which notifies the taxpayer that his or her debt has been certified as "seriously delinquent" and that the taxpayer has 30 days to challenge the notice.[11] An unresolved debt will eventually attract a Letter 6152, Notice of Intent to Request U.S. Department of State Revoke Your Passport. The Letter 6152 provides the taxpayer a final 30 days to resolve their matter. Certification may be appealed to the U.S. Tax Court or a U.S. District Court for determination as to whether such certification was in error or was not properly reversed per IRC §7345(c).

The Taxpayer Fighting Back

It is surprising, even to the IRS, that certification and the repercussions involving an individual's ability to travel internationally have generated relatively very little taxpayer interest in litigating the matter. Recently, as reported by TaxNotes' Andrew Velarde, IRS Deputy Associate Chief Counsel Richard Goldman was quoted at the American Bar Association Section of Taxation meeting (ABA meeting) in Boca Raton, Florida, on January 31, as remarking that:

This was [an] area where there was an expectation that there would be an overwhelming number of cases taken to Tax Court. We've gotten some administrative activity that would support a potential deluge of cases.

Despite, this expectation, TaxNotes reports that Goldman counted only 50 docketed passport cases at the time of the ABA meeting. However, Velarde does note that Goldman highlighted and discussed one of these 50 cases in particular-Jones v. Mnuchin et al.[12]

Specifically, in Jones v. Mnuchin et al., Taxpayer, himself a member of the Georgia Bar with experience arguing before the Supreme Court, has filed a complaint seeking judicial review of his passport ineligibility resulting from his certified seriously delinquent IRS tax debt. First, he challenges the certification on the grounds that the IRS previously determined the tax debt to be uncollectible and any liens for the tax years at issue are currently not legally enforceable. More interestingly, Taxpayer asserts that IRC §7345:

is unconstitutional under the Fifth Amendment and other applicable law because they completely deprive Plaintiff of his right to international travel for reasons that are not closely tailored to the Government's interest in collecting revenue or preventing tax fraud-particularly when applied to a citizen who engages in no financial activity abroad, illicit or otherwise, which would be furthered by issuance of a passport.

Taxpayer further emphasizes that the right to international travel is as fundamental as any other right guaranteed to U.S. citizens, such as the right to free speech. And just as the other guaranteed rights may not be denied simply because of an old tax liability, neither may the right to travel abroad be so denied.

1. Facts as Presented in Complaint Filed 12/31/2019

Taxpayer is a U.S. citizen who held a US passport from approximately 1990 to 2015. In or about November of 2019, he submitted his passport for renewal. Other than a small number of trips to the Caribbean and one trip to England. All of these trips occurred in the 1990s, and Taxpayer hasn't used his passport to travel since then. However, with his 20th wedding anniversary in sight, he wants to renew his passport in order to be able to travel abroad in 2020.

Taxpayer has been a member in good standing of the State Bar of Georgia for over thirty years. During those years, he has argued before the Supreme Court of the United States-effecting significant changes to the law. However, as a sole practitioner for the bulk of his career, he has experience financial ups and downs, domestic relations litigation and bankruptcies due to an earlier marriage, a lack of capitalization and credit problems-all of which contributed to unresolved federal tax problems for tax years 2000, 2002, 2005, 2006, 2008 and 2009.

In February of 2012, following many failed attempts to implement an IRS payment plan or offers in compromise in order to resolve the debt, the IRS issued Taxpayer a "Case Closed-Currently Not Collectible" letter for years at issue. In the letter, the IRS declared that Taxpayer lacked the ability to pay anything at that time towards his liabilities. Although Currently Not Collectible (CNC) status is a temporary status, the status as remained unchallenged by the IRS, and IRS tax liens have since expired without renewal. Additionally, Taxpayer made every effort to keep current with his taxes going forward.[13]

After the enactment of IRC §7345, Taxpayer's debt-the very same debt in CNC status-was certified as "seriously delinquent," and this certification was then communicated to the Secretary of State. In December of 2019, the Department of State issued a letter to Taxpayer stating that he was unable to receive passport services due to his certification.

2. Taxpayer's Constitutional Challenge

In Taxpayer's complaint, filed on December 31, 2019, with the United States District Court for the Southern District of Georgia, he argues that:

A statute which absolutely deprives an entire category of citizens (those with large tax debts) of an important constitutional right no matter what the circumstances is constitutionally overbroad, either on its face or as applied to the circumstances of this case.

Noting that in Haig v. Agee,[14] the Supreme Court determined that depriving an individual of the right to travel by passport denial was specific to individuals who were deemed to present a threat to national security, Taxpayer argues that the case does not permit Congress to "issue a blanket denial of travel rights" to all delinquent taxpayers unless it can demonstrate "an individualized showing of a particularized threat."[15]

Taxpayer maintains that a mandated passport denial, "without discretion and without a particularized showing of compelling need, based solely upon delinquent tax status"[16] is unconstitutionally overbroad.

Simply put, in the context of a US citizen who is a tourist in the truest sense of the word—and does not engage in financial activity abroad (whether legal or illegal)—in those circumstances, the IRS’s reasons for depriving such an individual of his or her right to travel abroad are not "closely tailored" to the IRS’s interest in tax collection or tax fraud prevention. There is an overreach by the government and its actions are unconstitutional.

Conclusion

Finally, a taxpayer’s constitutional challenge to the government’s ability to deprive certain delinquent taxpayers of their right to travel internationally is commanding attention and encouraging awareness of the importance of insuring that the proper balance is maintained between the IRS’s interest in tax collection and an individual’s constitutionally protected rights. Significantly, Taxpayer is not entirely alone in his endeavor, even the Taxpayer Advocate is concerned that, at the very least, the IRS is not abiding by the intent behind the law, and has stated that:

[t]he legislative history of IRC §7345 says that Congress intended to "permit revocation of a passport only after the IRS has followed its examination and collection procedures under current law and the taxpayer’s administrative and judicial rights have been exhausted or lapsed." The right to receive assistance from TAS is one such administrative right, which Congress expressly provided when it codified IRC §§7803(c)(A)(i) and 7811. Certifying taxpayers who have already come to TAS before certification and are actively working to resolve their tax liabilities will harm taxpayers who are voluntarily trying to come into compliance. Yet, one of the primary goals of the passport statute is to encourage taxpayer compliance. A Senate report states: "The Committee believes that tax compliance will increase if issuance of a passport is linked to payment of one’s tax debts.[17]

If your tax debt has been certified as seriously delinquent and your passport is in jeopardy, call Frost & Associates, LLC today at 410-497-5947.


[1] Kent v. Dulles, 357 U.S. 116, 125 (1958).

[2] United Nations, Universal Declaration of Human Rights, GA Res. 217A (III), U.N. Doc. A/810 (1948).

[3] GAO Report, Highlights.

[4] Id. at 17.

[5] IRC §7345.

[6] IRC §7345(b)(1).

[7] IRC §7345(b)(1)(A).

[8] IRC §7345(b)(1)(B). The amount is indexed for inflation. I.R.C. §7345(f). For 2020, the amount is $53,000. Rev. Proc. 2019-44.

[9] IRC §6320 collection due process rights must have lapsed or been exhausted.

[10] IRC §7345(b)(1)(C).

[11] If the taxpayer is located outside of the United States, then he or she has 90 days within which to challenge the notice.

[12] Docket No. 1:19-cv-00222 (S.D. Ga. Dec 31, 2019).

[13] The Taxpayer claims to have paid more taxes since 2016 than the President of the United States, despite making a fraction of the President's income.

[14] 453 U.S. 280 (1981).

[15] Jones v. Mnuchin et al., Docket No. 1:19-cv-00222, at 11. Taxpayer also references Aptheker v. Sec'y of State, 378 U.S. 500 (1964), in which the court determined that it was unconstitutional to deny passports to members of the Communist party.

[16] Jones v. Mnuchin et al., Docket No. 1:19-cv-00222, at 12.

[17] See https://taxpayeradvocate.irs.gov/news/nta-blog-refusal-to-exclude-open-TAS-cases-from-the-passport-certification-program-violates-taxpayer-rights.

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