I'm surprised this isn't getting more coverage and that I just read about this now -
Effective 12.4.2015, the IRS was given power to ask that the US State Department deny, limit, or revoke passports of citizens owing over $50,000 in tax (this amount includes interest and penalties). According to the Senate Joint Committee on Taxation, the provision is expected to raise $395 million over ten years.
Of course, few citizens (and probably few congressman) had a chance to learn more about the provision prior to its taking effect, granted that it was part of a massive infrastructure spending bill (wtf?), and slipped through the cracks as a section of "H.R. 22 – Fixing America’s Surface Transportation Act, the “FAST Act.” The section itself is titled "Revocation or Denial of Passport in Case of Certain Tax Delinquencies."
This has some serious implications:
1. Although 50k worth of taxes owed seems quite large, it is actually imaginable for a specific group of citizens - those with bank accounts abroad. IRS's FATCA requires citizens with over $50,000 in controlled accounts (even if indirectly so) abroad to report these assets to the IRS. Failure to do so could result in a penalty of $10,000, and a further penalty of up to $50,000 for failure to disclose. The issue is what happens to those citizens who are negligently failing to disclose because, living abroad, they were simply unaware of the FATCA requirement? The IRS is aware of this problem, so they have developed a program which allows expats to return to the US and file back-taxes and penalties without facing criminal prosecution. Thinking about it a bit, though, this is still fairly ridiculous - why are you forced to pay penalties for failing to meet an abstract filing requirement of which you had no notice of in the first place? For how many citizens do these penalties add up to the $50k threshold in fees? Will any of these expats ever return home to find out that their passports have been revoked while they were abroad?
2. We have all read quite a bit about US grads with high debts leaving the US to avoid repaying their high-interest student loans. Although the IRS and the department of education are two fairly separate entities, the fact of the matter is that the US Gov is starving for money to deal with its massive spending deficit and perpetuate its welfare state. Unlike, negligent failures to pay taxes, failure to pay student loans is almost always willful. This leads me to think that it may be possible that, in about 10 years (when the US could potentially be in a horrible financial position), the gov could draft a law allowing the department of state to revoke passports from student debtors.
Some numbers to consider:
There are about 7 million student debtors in default (source: http://www.wsj.com/articles/about-7-mill...1440175645)
Average student debt is $20,000. (For the sake of my argument, lets reduce that to $5,000, even though debt balance of defaulters is likely significantly much higher, since that is a-priori the reason that they refuse to make payments).
If you have 7,000,000 in default, even if they only owe an average of $5,000, that is still $35,000,000,000 owed to the US gov! (interest is growing too!) Compare this to the statement of the Senate's Joint Committee on taxation, which says that its new provision will help them save a measely $395 million over ten years.
**********
Some general background reading about the law here:
https://www.rt.com/usa/326816-passport-r...irs-taxes/
http://www.forbes.com/sites/robertwood/2...41865d19d9
http://www.forbes.com/sites/robertwood/2...454b6308a0
http://www.paulhastings.com/publications...00004cbded
Effective 12.4.2015, the IRS was given power to ask that the US State Department deny, limit, or revoke passports of citizens owing over $50,000 in tax (this amount includes interest and penalties). According to the Senate Joint Committee on Taxation, the provision is expected to raise $395 million over ten years.
Of course, few citizens (and probably few congressman) had a chance to learn more about the provision prior to its taking effect, granted that it was part of a massive infrastructure spending bill (wtf?), and slipped through the cracks as a section of "H.R. 22 – Fixing America’s Surface Transportation Act, the “FAST Act.” The section itself is titled "Revocation or Denial of Passport in Case of Certain Tax Delinquencies."
This has some serious implications:
1. Although 50k worth of taxes owed seems quite large, it is actually imaginable for a specific group of citizens - those with bank accounts abroad. IRS's FATCA requires citizens with over $50,000 in controlled accounts (even if indirectly so) abroad to report these assets to the IRS. Failure to do so could result in a penalty of $10,000, and a further penalty of up to $50,000 for failure to disclose. The issue is what happens to those citizens who are negligently failing to disclose because, living abroad, they were simply unaware of the FATCA requirement? The IRS is aware of this problem, so they have developed a program which allows expats to return to the US and file back-taxes and penalties without facing criminal prosecution. Thinking about it a bit, though, this is still fairly ridiculous - why are you forced to pay penalties for failing to meet an abstract filing requirement of which you had no notice of in the first place? For how many citizens do these penalties add up to the $50k threshold in fees? Will any of these expats ever return home to find out that their passports have been revoked while they were abroad?
2. We have all read quite a bit about US grads with high debts leaving the US to avoid repaying their high-interest student loans. Although the IRS and the department of education are two fairly separate entities, the fact of the matter is that the US Gov is starving for money to deal with its massive spending deficit and perpetuate its welfare state. Unlike, negligent failures to pay taxes, failure to pay student loans is almost always willful. This leads me to think that it may be possible that, in about 10 years (when the US could potentially be in a horrible financial position), the gov could draft a law allowing the department of state to revoke passports from student debtors.
Some numbers to consider:
There are about 7 million student debtors in default (source: http://www.wsj.com/articles/about-7-mill...1440175645)
Average student debt is $20,000. (For the sake of my argument, lets reduce that to $5,000, even though debt balance of defaulters is likely significantly much higher, since that is a-priori the reason that they refuse to make payments).
If you have 7,000,000 in default, even if they only owe an average of $5,000, that is still $35,000,000,000 owed to the US gov! (interest is growing too!) Compare this to the statement of the Senate's Joint Committee on taxation, which says that its new provision will help them save a measely $395 million over ten years.
**********
Some general background reading about the law here:
https://www.rt.com/usa/326816-passport-r...irs-taxes/
http://www.forbes.com/sites/robertwood/2...41865d19d9
http://www.forbes.com/sites/robertwood/2...454b6308a0
http://www.paulhastings.com/publications...00004cbded
