The IRS can refuse or confiscate your passport

The IRS now has authority over your passport. The US tax man can control where you live and where you travel. In fact, the IRS is holding 362,000 passports hostage until their owners pay up. The Service will keep you in the home of the free until you pay what they claim you owe and you have no right to appeal or complain… just pay and shut up.

I’ve been warning that this day was coming for two years now. At the end of 2015, Congress passed a law that gave the IRS the right control your travel. It’s taken a while, but the IRS now has its act together and is refusing to renew the passports of anyone with a significant tax debt.

A “significant” tax debt is defined as any debt over $50,000 including accrued interest and penalties. So, if you owe less than this, don’t worry, you’re travel privileges are safe. If you owe more than $50,000, your passport is at risk of being confiscated and won’t be renewed.

According to an article in the Wall Street Journal (paywall), over 362,000 Americans will have their passport applications denied due to outstanding tax debts. And, from what I hear from my tax attorney colleagues, these cases are beginning to roll in. Apparently, the first few passport renewals were rejected last week.

Here’s how it goes. The US person mails in his or her passport requesting a renewal. Rather than a new passport, they get a letter in the mail that says their renewal is denied and that they need to contact the IRS to settle their debt.

Once your passport renewal is rejected, you must pay your debt in full to get a new passport. Entering into an installment agreement, or paying it down to below $50,000 is not sufficient. You must pay your debt in full before you apply for a new passport.

However, if you deal with the problem before the IRS catches up with you, then you can avoid having your passport seized or your passport renewal rejected. If you’re in an installment agreement, Offer in Compromise, or some other tax resolution program, your account is considered in good standing. So long as you keep up with your payments, you should be allowed to keep your passport.

And, yes these passports are being held hostage by the IRS. This is all about increasing collections. According to the Service, the agency has collected $11.5 million from 220 taxpayers, plus forcing another 1,400 into installment agreements.

No matter what you think about taxes and whether travel is a right or a privilege, the IRS has us expats over a barrel. If you live and work abroad, and your passport is seized, you’re locked into the United States until you pay up.

Many are paying the balance alleged just to get on with their lives. How many of us expats can afford to spend a year arguing with Uncle Sam? If your business and your life are in another country, what’s your passport worth?

So far, I’ve only heard of renewals being rejected. However, the law allows the IRS to revoke an active passport. If this were to happen to a US expat, you would be forced to return to the United States and to stay here until the debt is paid in full.

For US residents, not being allowed to travel for vacation is one thing. For those of us living and working abroad, not being allowed to return to our homes is a very different matter. This could cost us large amounts of money in lost business and other expenses.

And, what if you don’t have a home or family in the United States? What would you do? Where would you go?

There are two things you can do to protect your right to travel.

  1. Buy a second passport from a country like Dominica or St. Lucia. This will cost $125,000 for a single applicant. For more, see: Changes to the St. Lucia Second Passport Program.
  2. Become a legal permanent resident of your country of residency. That is, get a residency visa in the country you wish to live.

However, and this is a very big caveat, you must complete your residency visa or second passport purchase before the IRS catches up with you and you lose your US passport. That is to say, you must have a valid US passport to apply for a second passport or a second residency.

A second passport gives you a second travel document. With it, you can leave the US and travel to any country for which you have a visa or entry is visa free. For example, St. Lucia gives you visa-free or visa on arrival access to 125 countries and territories, ranking the Saint Lucian passport 37th in the world. Click here for a list of visa free countries.

In contrast, residency in a country doesn’t get you a second travel document. It allows you to live in that country and prevents you from being required to show your US passport. So, if you lose your US passport, you should be able to remain in your country of residency indefinitely.

That is, if you lose your US passport, you won’t be kicked out of your country of residency. You won’t be able to travel abroad, but you will be safe. You’ll basically be locked in to that one country.

The easiest country for a US citizen to get residency in is Panama. Simply invest $22,180 in Panama’s reforestation visa program and become a resident. After 5 years of residency you can apply for citizenship. For more on this, see: Best Panama Residency by Investment Program.

I hope you’ve found this article helpful. For more information on second passports or second residency programs, or for the contact information of an tax expert, please contact us below by filling out the form, Thank you. All consultations are free and confidential.