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It is a reality! As a US citizen staying or doing business overseas, it is possible for your passport to be revoked.

The Internal Revenue Service is doing its best to catch up on US Citizens who are unfaithful in paying their taxes. Aside from strict guidelines on reporting and filing foreign assets, incomes or accounts, this is one of the things that expats should be aware and careful of.

If you owe IRS a minimum amount of $50,000, then you belong to those who will be endangered of losing advantages related to the cancellation of your passport. Read on to better understand the situations that will lead to this scenario and the necessary steps to undertake to avoid such consequences.

Conditions that will lead to cancellation or revocation of your passport:
Any US citizen can experience this negative situation wherein your application for a passport will be denied or canceled. These are the legal bases that can lead you to this consequence.

1. Having a tax debt of at least $50,000 may cause you to lose passport benefits: H.R. 22 or the Surface Transportation Reauthorization and Reform Act of 2015 passed both the House and Senate readings and was finally signed on December 2015. Effective January 1, 2016, this law empowers the State Department to deny issuance of passports to US citizens who have at least $50,000 tax debt.

Even those who have incurred debts even before the law was made will also be under its jurisdiction. By rough estimate, this law will help IRS gain around $398 million in the next ten years.

2. Receiving a tax delinquency notice from the IRS: Incurring a huge debt in your tax payments, amounting to $50,000 or more, will cause IRS to issue a delinquency certification to the US State Department. Usually, this happens after tax evaluations which are done every year.  This issuance is filed in court and then given to the taxpayer.

There are, however, qualified taxpayers who do not have to worry about receiving this type of notice.

First, if you have incurred a debt but already made a contract or agreement with how you would repay your outstanding taxes, then you can be exempted from being issued a delinquency notice. Your payments must also be up to date according to agreed payment terms.

Second, having a debt case under court trial will also exempt you from receiving a tax delinquency notification. This means that your debt is under suspension.

3. Failure to declare at least two foreign accounts within a three-year term
A US Expat may not need to acquire a $50,000 debt because even two unreported foreign assets over three years of overseas stay will be a reason for a canceled passport.

In the past, IRS waive these penalties related to non-filing of foreign assets and incomes but up to how long this advantage is provided is uncertain.

Requirements to avoid this penalty among expats who are US citizens or Green Card holders:

1.Your tax debt is already under agreed payment terms or under court hearings.
A delinquency notice given to taxpayers is one clue your passport is at risk. There are, however, qualified taxpayers who do not have to worry about receiving this type of notice.

First, if you have incurred a debt but already made a contract or agreement with how you would repay your outstanding taxes, then you can be exempted from being issued a delinquency notice. Your payments must also be up to date according to agreed payment terms

Second, having a debt case under court trial will also exempt you from receiving a tax delinquency notification. This means that your debt is under suspension.

2. The email address you use abroad is capable of receiving IRS announcements or notifications.
In 2014, for instance, IRS sent 855,000 email notices to US expats but a lot of those emails where not received and therefore not taken care of. Tracking addresses is also difficult considering how frequent US citizens living abroad move from one area to another.

3.You have a special reason for your passport application.
There are also certain situations when the State Department will still issue a passport to a non-compliant taxpayer. These situations include emergency and charitable reasons for moving out of the country and within limited travel time only.

4.Your financial transactions are in order.
Make sure your tax filing is up to date so that whatever new bills or new policies are made, you can easily adopt.

If you want to catch up on delinquent tax payments, IRS provides an Amnesty program with less penalties including the Streamlined Filing Procedures and the OVDP or Offshore Voluntary Disclosure Program.

There are also payment plans available to those willing to make the necessary payments.

Opinions of tax experts in relation to this new bill:
Many tax experts voiced out their sentiments regarding to what they mostly refer as a “draconian” IRS measure.

A former IRS lawyer, mentioned, “This is going to have an extraordinary impact.” (CNN Money). He made this statement reflecting just how many citizens, not only US expats, will be affected by this bill.

The ACA Position Paper stated, “Many American citizens, particularly those overseas, were innocent of any intent to break the law, and had been unaware of the FBAR filing requirement.” This statement refers to ineffective system of issuing tax notices to overseas citizens.

A financial advisor said, “Americans abroad need their passports for many routine activities of daily life, such as banking, registering in hotel, or registering a child for school, and mistakes could be disastrous.” Bruce’s statement represents the inconvenience brought about by a revoked passport.

As an overseas-residing US citizen, this new regulation might cause some inconvenience. But you don’t have to experience the negative effects of a revoked passport. There are IRS agents and accountants who can provide advice on the best options and solutions when it seems like your passport is at risk of being denied.