NTA Blog: TAS Cases Demonstrate the Harm Caused by IRS Policies on Passport Certification

August 22, 2018

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My last blog on passport issues discussed the IRS’s continued refusal to exclude already open TAS cases from passport certification and my efforts to advocate for these taxpayers in the form of almost 800 Taxpayer Assistance Orders (TAOs) and a Taxpayer Advocate Directive that I plan to further elevate to the Commissioner. Today, I want to provide an update on TAS cases and discuss some examples that show how the IRS’s refusal to provide a stand-alone notice prior to certification harms taxpayers.

Internal Revenue Code (IRC) § 7345 authorizes the IRS to certify a taxpayer’s seriously delinquent tax debt to the Department of State for the purposes of passport denial, limitation, or revocation. A seriously delinquent tax debt is an assessed, individual tax liability exceeding $51,000 (adjusted for inflation) for which either a notice of federal tax lien has been filed or a levy has been made. The law requires only two forms of notice to taxpayers:  language in Collection Due Process (CDP) hearing notices and a notice sent “contemporaneously” with the certification the IRS sends to the Department of State.

As of August 10, 2018, TAS had over 700 open TAS cases where passport certification was a primary or secondary issue. In addition to the almost 800 TAOs I issued in January that asked the IRS not to certify already open TAS cases, TAS has since issued 20 additional passport TAOs, pursuant to procedures described in an Interim Guidance Memorandum I issued earlier this year. Four of these requested expedited decertification, which were worked expeditiously.

Lack of Prior Notice

I have explained in one of my past blogs how the IRS’s lack of a stand-alone notice prior to passport certification raises serious due process concerns. In my 2017 Annual Report to Congress, I recommended the IRS provide a notice to taxpayers 30 days prior to certification (or 90 days for taxpayers residing outside the United States) warning them about the specific harm that would occur. The following examples from recent TAS cases demonstrate the direct negative consequences of not providing a stand-alone notice prior to certification. (The taxpayers involved have consented to sharing redacted versions of their situations.)

In one TAS case, the IRS reinstated a taxpayer’s installment agreement after the taxpayer had stopped paying due to a serious health problem, but the Revenue Officer neglected to input the installment agreement into the system. The taxpayer first learned of this failure not with a pre-certification notice that would have allowed the taxpayer to alert the IRS to the problem, but instead with a notice that the taxpayer’s debt had already been certified to the Department of State, despite the taxpayer meeting a statutory exception to certification.

In a second TAS case, the taxpayer, who also has serious health problems, had paid the liability in full. However, the payment was not input in the system until eight days later (because of the archaic weekly update cycle built into IRS legacy computer systems), which was the same date the taxpayer’s account was pulled by the IRS for certification. A full two weeks after the account showed a zero balance, the IRS sent a passport certification notice to the taxpayer. Although TAS understands that in this case the IRS was able to prevent the actual certification to the Department of State from occurring, the taxpayer nonetheless received a letter stating that he or she had been certified, creating unnecessary anxiety and further communication with the IRS to confirm the taxpayer was not actually certified. The certification notice sent to the taxpayer was particularly confusing because in one place it stated, “Amount due: “$0.00” and other places stated: “We have certified to the State Department that your tax debt is seriously delinquent” and “Seriously delinquent tax debt is tax debt (including penalties and interest) totaling more than $51,000…”  A pre-certification notice sent 30 days prior (1) could have prompted the taxpayer to pay the liability earlier and (2) avoided the unnecessary and confusing certification notice, as well as the IRS wasting of resources to undo what it had erroneously done. Moreover, it could have prevented the IRS from looking as foolish as it did in this case.

With respect to taxpayers who reside abroad, we have seen fact patterns where taxpayers are actively working with the IRS to resolve account-related issues, including adjustments following a Substitute for Return assessment. Here is where our legacy systems yet again mess things up. For example, a Revenue Officer, working on a case in the field, will provide a due date for the taxpayer to submit the required documents, yet days before the due date the IRS places a marker on the taxpayer’s account, indicating the taxpayer would be certified approximately two weeks later. The account is then certified and has to be decertified just weeks later once the taxpayer’s account was adjusted and the taxpayer received currently not collectible status. Had this taxpayer residing abroad been notified 90 days prior to certification, he or she may have been able to resolve the issue prior to being certified.

In all three examples, the taxpayers came forward to resolve their tax debts. Had these taxpayers been given a stand-alone pre-certification notice, the taxpayers could have avoided passport certification altogether. Instead, one taxpayer was certified in a way that appears to violate the law (because the taxpayer was timely paying the liability pursuant to an installment agreement – a statutory exception to certification) and another taxpayer was incorrectly notified that he or she was certified when the taxpayer was not actually certified due to resolving the tax debt. A third type of taxpayer did not have the opportunity to work with the IRS to correct the inaccurate substitute for return prior to being certified.

Inability for Representatives to Receive Passport Notices

TAS has received multiple complaints from practitioners about not receiving passport notices sent to taxpayers whom they represent. The IRS has good reason for not providing passport notices to representatives whose power of attorney on file with the IRS does not include all of the tax years that comprise the seriously delinquent tax debt – such an action would disclose taxpayer information to a representative not entitled to receive it. However, TAS understands that currently, due to restrictions based on how the notices are generated, the IRS does not send passport notices to any representatives at all, even if they have a valid power of attorney on file that includes all of the tax years that comprise the seriously delinquent tax debt. My office will be exploring this problem further to determine what steps can be taken to allow the passport certification and decertification notices to be sent to representatives where such disclosure is authorized under the law. TAS has already sent the IRS a request to revise the language on the passport certification notice to clarify that a taxpayer must contact his or her power of attorney directly because the notice will not be sent to the taxpayer’s representative. Until the IRS revises its procedures to provide adequate notice to taxpayers and their representatives prior to passport certification, taxpayers will continue to be harmed.

The views expressed in this blog are solely those of the National Taxpayer Advocate. The National Taxpayer Advocate is appointed by the Secretary of the Treasury and reports to the Commissioner of Internal Revenue. However, the National Taxpayer Advocate presents an independent taxpayer perspective that does not necessarily reflect the position of the IRS, the Treasury Department, or the Office of Management and Budget.