IRC 7345

The U.S. Tax Court in Shaban v. Comm’r filed March 3, 2026 at T.C. Memo 2026-24 provides a good overview of what it means to be certified as a seriously delinquent taxpayer for passport purposes, and exceptions for that certification.  The taxpayer in this matter was nothing but a victim to his own brother’s embezzlement, which approximated $9 million.  Unfortunately, this included trust fund money for payroll taxes.  Since the taxpayer was the owner of the business, he was assessed with the Trust Fund Recovery Penalty, or TFRP. The taxpayer took advantage of the opportunity to protest the proposed TFRP penalty, but his representative failed to timely respond to requests for information and the assessment stuck.  Ultimately, he was certified by the Department of Treasury to the Department of State as seriously delinquent and his passport was affected.  The taxpayer’s goal was to attack the certification through the argument that he was a victim of ID Theft.  The Court reflected on their limited jurisdiction as defined by the relevant statute – IRC 7345. That statute only allows the Court to determine if the certification was erroneous, or if the IRS failed to reverse the certification when required to do so.  It is noteworthy to explore the exceptions to the definition of “seriously delinquent tax debt,” according to the statute.  Those exceptions are debt that is under the statutory amount ($66,000 for 2026), debt paid pursuant to an installment agreement, or an Offer in Compromise.  In addition, a taxpayer can be placed in Currently Not Collectible status. Or, a debt where collection is suspended because of a request for collection due process hearing, or request for innocent spouse relief. It is also feasible for an administrative claim of ID theft approved by the IRS, to remove the liability from qualifying as a seriously delinquent tax debt.  One would think given the taxpayer’s arguments that he was the victim of ID theft that he would have pursued the filing of Form 14039 Identity Theft Affidavit, for processing at the IRS.  He did not, and because of that, along with the inability to substantiate any other exception under the statute, the certification was deemed proper.  The take-away here is that establishment of a collection alternative, and other actions, can result in decertification for passport purposes, even if the debt is not paid in full.