The IRS now has the power to revoke or refuse to renew your US passport. I’ve been writing about this since December of 2015, and the day is finally here. The IRS will begin enforcing this travel ban in the next few weeks. Here’s what you can do to prevent the IRS from taking your passport.
If this is the first you’ve heard about an IRS travel ban, you might want to start with these articles:
- Sanctuary cities for Americans – Where you can go without a passport
Now that you’re caught up, here’s how to prevent the IRS from taking your passport. The first two methods are obvious, then we’ll get into the tricks of the trade.
Tip 1: The IRS can revoke or refuse to renew your passport if you’re “seriously delinquent” on your tax bill. A seriously delinquent debt is one that’s over $50,000, including interest and penalties. Note that an old debt of $15,000 can easily reach $50,000 with interest and penalties.
Also, once your passport is gone, paying down the debt to below $50,000 does you no good. You must pay it off in full before you get your passport and travel privileges back.
Tip 2: If you keep your IRS dispute going… keep fighting… the debt won’t become seriously delinquent. Respond to all notices in a timely manner, file your disputes, ask for as many continuances from collections as you can get, petition the tax court, and generally delay, delay and delay. This can tie up the system for years, all the while you keep your passport.
Of course, the debt will come home to roost one of these days. You’ll need to have a residency or a second passport in hand before that happens (see below).
Tip 3: Try to settle your debt with an Offer in Compromise. Make a reasonable offer based on your income and expense. Processing and negotiating an OIC can add 1 or 2 years to the collection process. Throughout this time, the IRS is prohibited from revoking your passport.
I should warn you that an Offer in Compromise has a “cost” to you. The IRS generally has 10 years to collect a debt from you. Once that 10 years is up, the debt usually falls away.
Filing a tax court petition or an OIC stops this collection statute. That is to say, delaying collections through these methods extends the collection statute.
Tip 4: Let the statute run. You never want to extend the statute if you have only a year or two left… just ride it out. Once the debt expires, the government will be forced to return your passport.
Tip 5: File bankruptcy. Most personal income taxes can be discharged in bankruptcy. If the income tax debt is more than 3 years old, not the result of tax fraud, and you filed a tax return for the debt you wish to discharge at least two years before filing for bankruptcy, it should be eliminated.
Tip 6: Negotiate an installment agreement. No matter the size of the debt, if you’re making payments and keeping to the terms of your agreement, you won’t become seriously delinquent. Even if the debt is $1 million, and you’re paying $200 a month, you won’t lose your passport.
An installment agreement is a complex matter. Payments are based on your income and allowed expenses. If you make to much money, you won’t get an installment agreement. If your passport is at risk, contact a professional, or send us a message HERE for more information.
Tip 7: Become a permanent resident of a foreign country before the IRS takes your passport. We call this the IRS travel ban because the IRS can force you to remain in the US or to return home, by revoking your passport. If you’re a permanent resident of a foreign country, you can’t be forced to return to the United States.
The permanent residency will strengthen your bargaining position. However, you won’t be allowed to travel outside of your country of residence because you don’t have a valid passport. Likewise, you won’t be forced back to the United States either. You’ll be in limbo… you can stay where you are and open negotiations with the IRS from abroad.
Note that you must have legal permanent residency status before losing your US passport. If the IRS hits you before you have permanent status, you’ll eventually be forced back home.
Tip 8: Buy or earn a second passport before you lose your US passport. If you have a second passport in hand, losing your US travel document will have a minimal impact. You’ll be able to leave the US on this passport, so the IRS has no control over you. You can travel to any country which allows visa-free entry with that second passport, which should be most of the world.
If you can’t afford a quick fix and can hold off the IRS for 2 years, then consider Nicaragua. You can become a resident of this country with an investment of $35,000. Then, you must live there for 6 months a year for 2 years. Once that’s done, you can apply for citizenship and a second passport.
Nicaragua is the lowest cost second passport program for those who are willing to put in the time. For more, see: The Best Second Residency Program
Another benefit of Nicaragua is that you can make the investment using your US retirement account. Setup an offshore IRA LLC, move the account to a foreign bank account and then invest using your retirement funds.
As with permanent residency, you must complete the second passport process before the IRS revokes your passport. Once your passport is gone, you are no longer eligible to apply for a second passport.
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