Road Map for IRC 7345 Tax Debt Passport Revocation, Mattson

A Tax Court Passport Revocation for Tax Debt Roadmap, Mattson

Tax Court Passport Revocation for Seriously Delinquent Tax Debt 

When it comes to passport revocation, the Internal Revenue Service has taken a hardline approach to enforcement — which can have a serious impact on expats worldwide. Each year, the IRS revokes and denies passport applications when the Taxpayer has a seriously delinquent tax debt. The road from tax liability to revocation or denial – and then challenging that revocation/denial – can be long and winding. Unfortunately, the courts have continued to bless the IRS with enforcement. In the recent case of Mattson, the Tax Court provides a good breakdown of how the scenario can oftentimes play out.

PROCEDURAL BACKGROUND

Here is a brief procedural background of the case:

Petitioner sought Collection Due Process and Lost

• • • Petitioner Had a Tax Liability Mr. Mattson did not file income tax returns for tax years 2001, 2002, and 2005 through 2008 (years in issue). The IRS, pursuant to section 6020(b), prepared substitutes for returns for the years in issue using third-party information return documents. In six separate notices of deficiency the IRS determined the following deficiencies and additions to tax:

    • Mr. Mattson did not contest any of the six notices of deficiency. Accordingly, the IRS assessed the foregoing deficiencies, additions to tax, and applicable interest on March 24, 2008 (for tax years 2001 and 2002), and June 27, 2011 (for tax years 2005 through 2008). The IRS also assessed a section 6673 penalty (which will be discussed in more detail below) on September 5, 2011.

*His liabilities combined exceeded 50K.

Collection Due Process Hearings and Subsequent Court Proceedings

• • • Tax Years 2001 and 2002 As part of its efforts to collect Mr. Mattson’s unpaid 2001 and 2002 tax liabilities, the IRS took two collection actions: (1) on September 18, 2008, it sent Mr. Mattson a notice of intent to levy; and (2) on or about September 25, 2008, it sent him a Letter 3172, Notice of Federal Tax Lien Filing and Your Right to a Hearing Under IRC 6320. Mr. Mattson timely requested a collection due process (CDP) hearing for the lien and levy notices for both tax years on October 17, 2008. A settlement officer (SO) with the IRS Office of Appeals4 conducted a CDP hearing on June 4, 2009. About a month later, on [*4] July 9, 2009, the SO issued a notice of determination sustaining the lien and levy collection actions for both tax years.

    • Timely Petition to Tax Court On August 11, 2009, Mr. Mattson petitioned this Court for review of that notice of determination.

    • He also challenged his underlying liabilities; but instead of offering proof of his actual tax liabilities for those years, he advanced dilatory arguments which we rejected. We sustained the notice of determination, and we imposed a $2,000 section 6673(a)(1) penalty for instituting proceedings primarily for delay and for staking a groundless position. The IRS assessed that penalty on September 5, 2011, as a tax liability for tax year 2001.

Tax Debt is Held Legitimate

At this stage of the procedural background, the IRS and Tax Court affirmed that a tax debt existed, it was legitimate, and the IRS could move forward with enforcement. In fact, the tax court also penalized the taxpayer under 6673 because the tax court believed the case was filed for the purpose of delay by forwarding a groundless position.

Next comes the passport issues. We have reproduced key portions of the ruling to show the progression from tax debt to passport revocation.

PASSPORT REVOCATION AND NEW TAX COURT FILING

III. Certification Under Section 7345

Court Summary of the Validity of IRS Enforcement

• • • As a further part of its efforts to collect Mr. Mattson’s outstanding tax liabilities for the years in issue, on July 30, 2018, the IRS mailed Mr. Mattson a Notice CP508C, Notice of certification of your seriously delinquent federal tax debt to the State Department (certification notice). The certification notice states, in pertinent part: On December 4, 2015, as part of the Fixing America’s Surface Transportation (FAST) Act, Congress enacted Section 7345 of the Internal Revenue Code, which requires the Internal Revenue Service to notify the State Department of taxpayers certified as owing a seriously delinquent tax debt.

    • The FAST Act generally prohibits the State Department from issuing or renewing a passport to a taxpayer with a seriously delinquent tax debt. We have certified to the State Department that your tax debt is seriously delinquent. [*5] We show that you still owe $61,933.71. This amount includes penalty and interest computed to 30 days from the date of this notice. Mr. Mattson then filed a Petition with this Court pursuant to section 7345(e)(1).5 The Cross-Motions for Summary Judgment now before us followed in due course.

First Requirement: Assessment

• • • “Assessment” is defined in section 6203 and is the process by which the amount of tax owed to the IRS is fixed by recording the liability of the taxpayer in the Office of the Secretary of the Treasury. See San Gabriel Energy v. Commissioner, T.C. Memo. 1994-150, 1994 WL 122102, at *6. If the IRS determines that a taxpayer has a deficiency in income tax, then it must follow the deficiency procedures before assessing that deficiency. See I.R.C. §§ 6211-6215. To demonstrate that the assessments were made, respondent provided copies of the Notice[s] of Deficiency and the Certificate[s] of Assessments, Payments, and Other Specified Matters for the years in issue.

    • These two categories of documents evince that the IRS properly followed the deficiency procedures, which procedures were as follows: (1) the IRS first determined deficiencies and issued notices of deficiency; (2) it then waited until the time period for filing a petition with this Court for redetermination of a deficiency had passed, see I.R.C. § 6213(a); and finally (3) it appropriately assessed the liabilities determined in those notices of deficiency.

    • As to the Court-ordered section 6673(a)(1) penalty, that penalty was awarded by this Court, and the IRS was not required to issue a notice of deficiency before assessing it. The IRS assessed the tax year 2001 section 6673(a)(1) penalty approximately five months after this Court’s order to do so, as reflected in the Certificate of Assessments, Payments, and Other Specified Matters generated for that penalty. We therefore find that the assessment requirement imposed by section 7345(b)(1)(A) was met as to all components of Mr. Mattson’s tax debt.

 Second Requirement: $51,000 Threshold

• • • Mr. Mattson owed at least $61,934 for the years in issue at the time of the certification.8 That amount exceeds the $51,000 threshold. We thus find that the monetary threshold requirement imposed by section 7345(b)(1)(B), as modified by section 7345(f), was met. Section 6665(a)(2) provides that generally, “any reference in this title to ‘tax’ imposed by this title shall be deemed also to refer to the [*8] additions to tax, additional amounts, and penalties provided by this chapter.” “[T]his chapter” refers to chapter 68, which contains section 6673. However, even if we were to exclude Mr. Mattson’s $2,000 section 6673(a)(1) penalty (plus interest), his outstanding liability would still exceed the $51,000 threshold.

 Third Requirement: Unpaid and Legally Enforceable

• • •  Mr. Mattson has yet to pay his tax debts for the years in issue. In his Cross-Motion for Summary Judgment, he contends that the periods of limitations for collection of his debts for tax years 2001 and 2002 have expired, and that the Court-ordered section 6673(a)(1) penalty is invalid because the IRS failed to comply with section 6751(b)(1). As we will explain in further detail infra pp. 9-13, we disagree. We find that his debts for the years in issue, including the Court-ordered section 6673(a)(1) penalty, were legally enforceable as of the time of the certification. We therefore find that the “unpaid [and] legally enforceable” requirement imposed by the flush text of section 7345(b)(1) was met.

Fourth Requirement: Collection Actions Already Taken

• • • The record shows that when the IRS certified Mr. Mattson to the State Department, it had already issued lien and levy notices for tax years 2001 and 2002, as well as a lien notice for tax years 2005 through 2008 and for the Court-ordered section 6673(a)(1) penalty. Mr. Mattson had an opportunity to request a CDP hearing for each of the lien and levy notices he received. In fact, he did request CDP hearings for all of those notices, and he even petitioned this Court for review of the Office of Appeals’ notice of determination for tax years 2001 and 2002. As for the 2005 through 2008 liabilities and the section 6673(a)(1) penalty, Mr. Mattson’s right to review in this Court has lapsed. We thus find that the collection requirement imposed by section 7345(b)(1)(C) was met. See also Ezekwo v. Commissioner, T.C. Memo. 2022-54, at *5 (clarifying that either a notice of lien filed pursuant to section 6323 or a levy made pursuant to section 6331 “is sufficient to render a tax debt ‘seriously delinquent’”).

Conclusion

• • • We will grant respondent’s Motion for Summary Judgment and deny Mr. Mattson’s Cross-Motion for Summary Judgment.

    • In reaching our holding herein, we have considered the parties’ arguments and, to the extent not discussed above, conclude that they are irrelevant, moot, or without merit.

Current Year vs Prior Year Non-Compliance

If you are worried about one or more years of prior year noncompliance, there are options available to you for getting into compliance and resolving your tax and reporting issues. Once a taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist that specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to streamlined procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead of the Streamlined Procedures. But, if a willful Taxpayer submits an intentionally false narrative under the streamlined procedures (and gets caught), they may become subject to significant fines and penalties. 

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure. 

Contact our firm today for assistance.