United States: US Tax Debt, No Social Security Number… Goodbye US Passport?

As another season of summer travel starts, UK residents with US ties should make sure they are thinking carefully about their US tax obligations. While compliance may not be first in the minds of most people planning trips to the US, in light of new legislation, US citizens who have outstanding US tax debt or who lack a US Social Security Number (SSN) could risk losing their US passport. This means the traveler may not be allowed to leave the US.

In 2015, the US enacted legislation that allows the US Department of State to revoke the passports of US citizens who owe more than $50,000 in unpaid taxes or who do not have a valid SSN. The legislation gives the Department of State the authority to revoke passports not associated with valid SSNs – even, presumably, unannounced at the border. Unfortunately, the solution to this problem for affected US passport holders may not be simple, since obtaining an SSN can prove especially tricky for Americans who live outside the US.

The link between passport denial and revocation is fairly apparent, and implementation of such a measure would continue the US's willingness to employ sometimes assertive means of compelling compliance with its citizenship-based taxation. The Foreign Account Tax Compliance Act (FATCA), in effect as of July 2014, is the centerpiece of a new US regime designed to ensure that US citizens abroad with US assets fulfill their annual tax filing obligations. Unfortunately, FATCA hits US citizens living abroad especially hard.

Implementation of the new legislation has happened relatively quickly since the groundwork for a more robust interface between the IRS and other parts of the federal government is already in place. The US Government Accountability Office, for instance, analyzed passport denials and restrictions as a tool for tax collection in 2011 and identified the lack of enabling legislation as perhaps the biggest impediment to its implementation. Congress has already enacted a penalty structure for Americans who do not provide an SSN with their passport application and the IRS is updating its procedures for tracking such individuals.

Our firm, Moodys Gartner Tax Law, has previously commented on the possible impact of similar legislation. It could be felt acutely by Americans living abroad because of complications created by the requirement that US citizens use only US passports for travel to and from the US.

Under current law, people who hold a US passport, but who enter or depart the US without a US passport, do so illegally. While in practice, US Customs and Border Protection may not always enforce violations of this law, but its language is fairly unambiguous: "Except as otherwise provided by the President and subject to such limitations and exceptions as the President may authorize and prescribe, it shall be unlawful for any citizen of the United States to depart from or enter, or attempt to depart from or enter, the United States unless he bears a valid United States passport."

Americans living outside the US might question the wisdom of revoking passports for unpaid taxes or not having an SSN. The legislation may also pose constitutional issues related to the right to travel and due process. Those are debates for another article, though it is worth mentioning that the US constitutional "right to travel" standard is not always clear-cut and that the right to international travel is adjudicated under a different standard from that which governs the right to travel within the US.

The new legislation is now in force and UK residents who have plans to visit the US need to be aware of the potential consequences of US tax filing obligations. Problems at the US border, either entering or leaving, would certainly put a damper on that US holiday.

Originally published by The American.

Moodys Gartner Tax Law is only about tax. It is not an add-on service, it is our singular focus. Our Canadian and US lawyers and Chartered Accountants work together to develop effective tax strategies that get results, for individuals and corporate clients with interests in Canada, the US or both. Our strengths lie in Canadian and US cross-border tax advisory services, estateplanning, and tax litigation/dispute resolution. We identify areas of risk and opportunity, and create plans that yield the right balance of protection, optimization and compliance for each of our clients' special circumstances.