On April 24, 2012 the U.S. Senate approved an amendment to a bill1 that would cause U.S. taxpayers to lose their passport if they owe more than $50,000 in U.S. taxes. While this is a significant development for those who reside in the U.S., it is particularly significant for the estimated seven million2 U.S. citizens who reside in Canada, Mexico, Europe, or anywhere abroad because current law makes it unlawful to depart, enter, or attempt to depart or enter the U.S. without a valid U.S. passport.3
If the House of Representatives approves the Senate's amendments the bill will then be presented to the President for signature. You can read the full text of the bill by clicking here. According to GovTrack,4 a website that tracks bills as they make their way through Congress, 29% of all House bills reported favorably by committee in 2009 – 2010 were enacted into law.
The bill demonstrates that the U.S. is serious in its efforts to fight tax evasion and off-shore abuses, which is a noble cause. However, consistent with other efforts to date, the inadvertent casualties are U.S. citizens residing abroad. If the bill is signed into law, and its constitutionality upheld, it will be even more important for U.S. citizens residing abroad to bring their reporting obligations current lest they inadvertently find themselves in violation of immigration laws when they cross the border.
Section 4036 of the Senate amendment provides in relevant part:
"If the Secretary receives certification by the Commissioner of Internal Revenue that any individual has a seriously delinquent tax debt in an amount in excess of $50,000, the Secretary shall transmit such certification to the Secretary of State for action with respect to denial, revocation, or limitation of a passport pursuant to the Passport Act of 1926."
The amendment is estimated to raise $743 million over 10 years.
This is not the first time these particular tax and passport provisions have been proposed in Congress. On March 14, 2012 the Senate approved MAP-21, which was sent to the House for vote. The bill was not presented for vote and, instead, the House voted on and approved the Surface Transportation Extension Act of 2012. Importantly, the House bill did not contain the passport and tax provisions of MAP-21. When the House bill was presented to the Senate, it was approved with the passport and tax amendments.
Given the torrent of media attention surrounding the expatriation of Facebook co-founder Eduardo Saverin immediately prior to the company's initial public offering (including Senator Schumer's proposed Ex-Patriot tax), it is clear that the tax compliance burden for U.S. citizens residing abroad will not abate any time soon.
Footnotes
1. H.R. 4348 as passed by the House of Representatives, the "Surface Transportation Extension Act of 2012, Part II;" and MAP-21 as amended by the Senate, the "Moving Ahead for Progress in the 21st Century Act."
2. National Taxpayer Advocate 2011 Annual Report to Congress at 129. Citing Memorandum for Secretary Geithner from J. Russell George, Treasury Inspector General for Tax Administration, Management and Performance Challenges Facing the Internal Revenue Service for Fiscal Year 2011 13 (Oct. 15, 2010).
3. 8 U.S.C. 1185(b). See also 22 CFR 53.1.
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