IRC Section 7345
The United States Court of Appeals for the Fifth Circuit in James Franklin v. United States et al., Case No. 21-11104, handed down an opinion on September 15, 2022 in which it affirmed the United States District Court for the Northern District of Texas as it relates to revocation of the taxpayer’s passport for seriously delinquent taxes. Plaintiff, James Franklin was found by the IRS to have not filed accurate tax returns and had not reported a foreign trust for which he was a beneficial owner. Penalties were assessed against the taxpayer and enforcement action in the form of filing a federal tax lien, levying Social Security benefits and notifying the Department of State that the taxpayer was seriously delinquent ensued. The taxpayer ultimately sued the government over these issues and argued that the passport revocation scheme of the statute violated his rights under the Fifth Amendment because it affected his fundamental right to travel internationally. This Court reviewed several Supreme Court rulings and provided the following guidance: the right to international travel can be regulated within the bounds of due process. The Court analyzed the passport revocation statute’s goals, protections and objectives…ultimately deeming the statute to be constitutional. This decision is at least the second decision of a Court of Appeals on this topic in the last year. In Jeffrey T. Maehr v. United States Department of State, Case No. 20-1124, handed down on July 20, 2021, the United States Court of Appeals for the Tenth Circuit ruled the statute to be constitutional also.
The Tax Court ruled in Ifeoma Ezekwo v. Comm’r of Internal Revenue, T.C. Memo 2022-54 filed May 31, 2022 that there was no error in the Commissioner’s certification to the Department of State that the taxpayer had a “seriously delinquent tax debt,” and that her passport could be revoked, limited, or an application for the same could be denied. IRC Section 7345 provides that if the IRS certifies that a taxpayer has a “seriously delinquent tax debt,” that certification is transmitted to the Department of State for action relating to a taxpayer’s passport. A “seriously delinquent tax debt” is one that is unpaid, legally enforceable, and in excess of the current threshold adjusted for inflation – currently, $55,000. It is important to note that if a taxpayer is on an installment agreement, or in currently not collectible status, they are not seriously delinquent for this purpose. This case is a straightforward fact pattern with a taxpayer seemingly in denial that they still owed the government money after levy. As such, the Court disposed of the matter quickly. Of note, the Court stated that the only determination they are allowed to make under the statute is whether the Commissioner’s certification of a taxpayer as seriously delinquent was “erroneous.” They made this point to illustrate the fact that they cannot review the underlying liabilities in a review of the certification. The Court also pointed out a couple of exclusions for debts that could be certified. One was relating to a pending Collection Due Process hearing. If timely filed, the debt associated with the periods that triggered the hearing rights would not be included in the total debt for certification purposes. Also, the Court explained that a debt for which innocent spouse relief is requested will not be part of the certification. Taxpayers who have disagreements with the government, and are close to the threshold, could pay down the liability below the current amount that triggers the certification and de-certify. Additionally, this author would note that if a case is assigned to a field Revenue Officer, there are provisions that allow them to expedite a request for decertification if a taxpayer meets an exemption – such as the placement of an installment agreement. During the pandemic, the certification process was paused. That has since restarted and taxpayers are being certified at this time.