Insights Volume 9 Number 5: Updates & Other Tidbits

• Published date: 30 September 2022
• Subject Matter: Finance and Banking, Tax, Debt Capital Markets, Tax Authorities
• Law Firm: Ruchelman PLLC
• Author: Wooyoung Lee

In Franklin v. U.S.,¹ the Fifth Circuit recently upheld the constitutionality of Code '7345, a provision of the Code that was in 2015. It allows the I.R.S. to effect the revocation of a U.S. citizen's passport where the individual is in seriously delinquent tax debt.

I.R.S. Procedure

The threshold for seriously delinquent tax debt is $50,000, with adjustments for inflation. Debt includes unpaid tax liability, penalties, and interest from late payments. Certain debts, such as debt of a bankrupt taxpayer, are excluded from this definition.

When the I.R.S. determines that a person is in seriously delinquent debt, it issues a CP508C Notice to the taxpayer, with a copy to the Secretary of State. This prevents the State Department from issuing or renewing a passport to the taxpayer, although the taxpayer's passport is not automatically revoked. Before denying a new or renewed passport, the State Department will give a taxpayer 90 days to sort out the situation.

Revocation may occur if the I.R.S. goes further and recommends revocation to the State Department. Before making such a recommendation, the I.R.S. will issue a Letter 6152, (Notice of Intent to Request U.S. Department of State Revoke Your Passport), to the taxpayer, informing him or her of the possible revocation. The letter requests that the taxpayer call the I.R.S. within 30 days to resolve the situation. Recommendations of revocation are typically reserved for taxpayers who promised to pay or could have paid off the debt but did not.

Avenues of Relief

Several avenues of relief are available to such taxpayers:

• The I.R.S. may not submit a certification to the State Department if the relevant debt is the subject of a requested or pending collection due process hearing.
• The individual and the I.R.S. may enter into an installment agreement allowing for the payment of the debt over time.
• The I.R.S. may accept an offer in compromise proposed by the taxpayer for the satisfaction of the debt at a lower amount.
• The U.S. Department of Justice may enter into a settlement agreement to satisfy the debt.
• Collection against a married couple filing a joint tax return may be suspended as to one of the spouses claiming innocent spouse relief under Code ' 6015.
• The application of Code '7345 to the taxpayer is the subject of an ongoing challenge in U.S. District Court or the Tax Court.

Franklin involved a court challenge to the application of Code '7345 after an offer in compromise was denied.

The Case

James Franklin is...