Second Circuit Affirms Tax Court that IRS Withdrawal of Certification of Seriously Delinquent Tax Debt to Secretary of State Makes § 7435 Proceeding Moot (2/1/22)

In Ruesch v. Commissioner, 25 F. 4th 67 (2d Cir. 1/27/22), GS here, the Court affirmed the Tax Court's holding that the § 7345 proceeding was moot where the IRS withdrew the "seriously delinquent tax debt" certification to the Secretary of State. The Tax Court opinion is Ruesch v. Commissioner, 154 T.C. 289 (2020), TC here at Dkt #25 and GS here.

In addition to holding that the § 7345 proceeding was mooted by the withdrawal of the certification, the Tax Court also held (from the syllabus):

Held: We do not have jurisdiction, under IRC sec. 7345 or otherwise, to consider in this case petitioner's challenge to her underlying liability for the penalties.

 The Second Circuit addressed that issue as follows (emphasis supplied by JAT):

   Even if the Tax Court had jurisdiction to assess the validity of Ruesch's underlying debt, Ruesch had already received the only relief she could obtain under the statute, namely, reversal of her certification as an individual with "seriously delinquent tax debt." See 26 USC § 7345(e)(2). Since there was no further relief the Tax Court could have provided under the statute, and since the statute provided Ruesch's only claimed basis for relief, it should have determined that Ruesch's remaining claims were moot. n3
   n3 We note that Ruesch may yet have the chance to challenge her underlying liability in Court. That liability is currently the subject of an IRS appeals process that has still to run its course. See 26 USC § 6320. After receiving a final determination through that process, Ruesch will be able, if necessary, to "petition the Tax Court for review of such determination (and the Tax Court shall have jurisdiction with respect to such matter)." Id. § 6330(d)(1); see id. § 6320(c). If Ruesch continues to object to the IRS's position regarding her underlying liability, she will eventually have her day in Court. For now, however, there is nothing further for our Court or the Tax Court to do.

 Two points about this:

10th Circuit Rejects Constitutional Challenges to Passport Denial or Revocation for Seriously Delinquent Tax Debt ( 7/20/21)

In Maehr v. United States Dep't of State, ___ F.4th ___, 2021 U.S. App. LEXIS 21406 (10th Cir. July 20, 2021), CA 10 here, the Court rejected Maehr’s constitution attack on the 2015 FAST Act’s provisions for denying passport issuance and permitting revocation of previously issued passports.  § 7345; 22 U.S.C. § 2714a(e)(1), (2).

Maehr mounted a credible but ultimately unsuccessful claim that these provisions violated constitutional rights based on the right to international travel.  Basically, the Court held that there was no fundamental right to international travel and thus the review was limited to rational basis review which was easily passed because the Government has an interest in collecting taxes.

IRS Release on Passport Denial and Revocation for Seriously Delinquent Tax Debt (8/9/19)

The IRS released IR-2019-141 (8/8/19), here, titled: "Individuals with significant tax debt should act promptly to avoid revocation of passports."  The release has very useful information and should be read by all persons with significant tax debts who travel internationally.  For example, taxpayers who have had their passport application denied because of the IRS's certification can apply for prompt processing "to resolve their tax issues and expedite reversal of their certification to State [Department]."

Here is the discussion of the passport denial or revocation procedure from the 2019 Federal Tax Procedure Book pending publication on SSRN (footnotes omitted):

XIII. Denial or Revocation of Passport for Seriously Delinquent Tax Debt.

Section 7345 and 22 U.S.C. § 2714a, added in 2015, require that, upon the IRS certification transmitted to the Secretary of State (through the Secretary of the Treasury) that an individual has “a seriously delinquent tax debt,” the Secretary of State “shall not issue a passport” to the individual and, if a passport has already been issued, "may revoke" the individual's passport.   A “seriously delinquent tax debt” is an assessed tax debt greater than $50,000 (as adjusted for inflation, $52,000)  if a notice of  tax lien has been filed with CDP rights exhausted or lapsed or a levy under § 6331 has been made.  Once certified, paying the account below the threshold amount will not result in decertification.

Exceptions are made for debts that are being paid “in a timely manner” pursuant to agreement with the IRS or which are subject to either a CDP hearing or an election for innocent spouse relief under § 6015.  The Secretary of State may approve exceptions to these requirements in “emergency circumstances” or for “humanitarian reasons” or may limit the passport only for return to the U.S.

The IRS must “contemporaneously notify an individual of any certification under subsection (a).”  The notice of the certification must include notice of the certification and of the right to bring a civil action in the district court or Tax Court to contest whether the certification was erroneous. The certification must be reversed if the certification was erroneous, the tax debt is fully satisfied, or the tax debt ceases to be a seriously delinquent tax debt as defined. This judicial remedy is the sole remedy for improper certification or failure to reverse a certification; the taxpayer may request IRS administrative relief but does not have an Appeals Office review of any action or nonaction pursuant to the request.

The required earlier notices of tax liens and notices of levy must include notice of § 6345's authority to deny or revoke passports.

Apart from a seriously delinquent tax debt certification, the Secretary of State may deny a passport for failure to provide a valid Social Security Number.

The certification will not prevent return travel to the U.S., although the passport may be confiscated upon re-entry.

Since the provision is relatively new, the procedures were not implemented immediately.  Persons interested in the implementation should check for more recent IRS actions or pronouncements and practitioner or scholarly comment.  The IRS has a website that indicates that certifications to the State Department began in February, 2018.

[Note:  the FTP 2019 edition pending  publication on SSRN said that the amount of the seriously delinquent tax debt as adjusted for inflation was $53,000.  It is $52,000; I have changed that above and in the working draft  for the FTP 2020 edition.]