Notice 2018-01

This notice provides taxpayers with information about the implementation of new section 7345 of the Internal Revenue Code (Code), enacted by Section 32101 of Fixing America’s Surface Transportation (FAST) Act, Pub. L.114–94, on December 4, 2015. Section 32101(a) of the FAST Act added new Code section 7345, which requires the Department of the Treasury (Treasury) to notify the Department of State (State Department) if a certification is made that an individual has a “seriously delinquent tax debt.” Such certification or a reversal of such certification may only be made by the Commissioner of Internal Revenue, the Deputy Commissioner for Services and Enforcement of the Internal Revenue Service (IRS), or the Commissioner of an operating division of the IRS (collectively, Commissioner or specified delegate). Upon receipt of a section 7345 certification, section 32101(e) of the FAST Act provides that the State Department will generally deny an application for issuance or renewal of a passport from such individual, and may revoke or limit a passport previously issued to such individual. The IRS and State Department will begin implementation of these provisions in January of 2018.

Section 7345(a) provides that if Treasury receives certification by the Commissioner that an individual has a seriously delinquent tax debt, such certification must be transmitted to the State Department for action with respect to denial, revocation, or limitation of a passport.

Under section 7345(b)(1), a “seriously delinquent tax debt” is an unpaid, legally enforceable, and assessed federal tax liability of an individual, greater than $50,000, and for which:

Pursuant to section 7345(f), the $50,000 amount is adjusted for inflation each calendar year beginning after 2016.

The $50,000 federal tax liability threshold is calculated by aggregating the total amount of all current tax liabilities for all taxable years and periods meeting the above criteria (including penalties and interest) assessed against an individual.

Section 7345(b)(2) provides that a seriously delinquent tax debt does not include the following:

Section 7345(c)(1) requires the IRS to notify the State Department if the Commissioner reverses the certification because it is erroneous or if the debt with respect to such certification is fully satisfied, becomes unenforceable, or ceases to be a seriously delinquent tax debt. Upon receipt of a notice of the reversal of the certification from the IRS under section 7345(c), section 32101(g) of the FAST Act requires the State Department to remove the certification with respect to such debt from the individual’s record at the State Department.

Section 7345(c)(2) provides the timing for IRS to notify the State Department about a reversal. In the case of a debt that has been fully satisfied or has become legally unenforceable (such as when the collection statute of limitations has run under section 6502), section 7345(c)(2)(A) provides that notification under section 7345(c)(1) must be made not later than the date required for issuing the certificate of release of lien with respect to such debt under section 6325(a) (30 days after the day on which the liability is fully satisfied or legally unenforceable or following acceptance of a bond in full payment of the liability). In the case of an individual who makes an election under section 6015(b) or (c) or requests relief under section 6015(f), section 7345(c)(2)(B) provides that notification under section 7345(c)(1) must be made not later than 30 days after such election or request. In the case of an installment agreement under section 6159 or an offer in compromise under section 7122, section 7345(c)(2)(C) provides that notification under section 7345(c)(1) must be made not later than 30 days after such agreement is entered into or such offer is accepted by the IRS. Finally, in the case of a certification found to be erroneous, section 7345(c)(2)(D) provides that notification under section 7345(c)(1) must be made as soon as practicable after such finding. In all other cases, section 7345(c) provides that such notification shall be made as soon as practicable.

Section 7345(d) requires the IRS to contemporaneously notify an individual when he or she is the subject of a certification or reversal of a certification. The notice must include a description in simple nontechnical terms of the right to bring civil suit under section 7345(e). This notice is the Notice CP508C, “Notice of certification of your seriously delinquent federal tax debt to the State Department.”

Section 7345(e) provides that an individual has the right to judicial review of whether a certification was erroneous or whether the IRS failed to reverse a certification in either a United States district court or the United States Tax Court. If a court determines that the certification was erroneous, the court may order the IRS to notify the Secretary of State that the certification was erroneous.

Section 7345(g) provides that the certification or reversal of a certification may only be delegated by the Commissioner of Internal Revenue to the Deputy Commissioner for Services and Enforcement, or the Commissioner of an operating division, of the IRS.

In addition, section 7508(a)(3) was added to the Code by section 32101(d) of the FAST Act to provide that certification of a seriously delinquent tax debt under section 7345 will be postponed while an individual is serving in an area designated as a combat zone or participating in a contingency operation.

In addition to the statutory exceptions set forth in section 7345(b)(2) and section 7508(a), the Internal Revenue Manual (IRM) will be updated to include information about circumstances under which a tax debt will not be subject to the certification process. The IRS will continue to monitor the certification process after implementation and may update the IRM if necessary to meet the requirements of the program.

If an exception set forth in section 7345(b)(2) applies, the State Department will not be notified that the taxpayer has a seriously delinquent tax debt and therefore section 32101(e) of the FAST Act, regarding denial of a passport application or revocation of a passport, will not apply with respect to such taxpayer. In addition, if after the State Department has been notified of a seriously delinquent tax debt certified under section 7345 the Commissioner or specified delegate determines that the tax debt should not have been certified (for instance, if a statutory exclusion or one of the circumstances set forth in the IRM applies), the IRS will notify the State Department in accordance with section 7345(c) that the certification has been reversed. The reversal notification will be made as soon as practicable after the determination.

Upon receipt of a notice from the IRS under section 7345(c) that the certification has been reversed, section 32101(g) of the FAST Act requires the State Department to remove the certification from the individual’s record with respect to such debt. The certification of a seriously delinquent tax debt to the State Department will be reversed if the tax debt no longer qualifies as seriously delinquent under section 7345(b)(2). Therefore, taxpayers notified that certification of their seriously delinquent tax debt has been transmitted to the State Department should consider paying the tax owed in full, or entering into an installment agreement under section 6159 or an offer in compromise under section 7122 with respect to the debt. More information on these payment options can be found at [https://www.irs.gov/businesses/small-businesses-self-employed/revocation-or-denial-of-passport-in-case-of-certain-unpaid-taxes].

When a certified taxpayer applies for a passport, the State Department, in general, will provide the applicant with 90 days to resolve their tax delinquency (such as by making full payment, entering into an installment agreement under section 6159, or IRS acceptance of an offer in compromise under section 7122) before denying the application. If a taxpayer needs their passport to travel within those 90 days, the taxpayer must contact the IRS and resolve the matter within 45 days from the date of application so that the IRS has adequate time to notify the State Department.

Generally, the sole remedy for a taxpayer who believes that a certification is erroneous, or that the Commissioner or specified delegate incorrectly failed to reverse a certification because the tax debt is either fully satisfied or ceases to be a seriously delinquent tax debt by reason of section 7345(b)(2), is to file a civil action in court under section 7345(e). The taxpayer may not go to IRS Appeals to challenge the certification or the decision by the Commissioner or specified delegate not to reverse a certification. However, the taxpayer may contact the phone number in the Notice CP508C to request reversal of the certification if the taxpayer believes that the certification is erroneous.

The principal author of this notice is Robin Ferguson of the Office of the Associate Chief Counsel (Procedure and Administration). For further information about this Notice contact Robin Ferguson at (202) 317-6832 (not a toll-free number).