The attitude of U.S. citizens to mandatory tax payments is extremely serious. Society seems to be more condescending to many other offenses: for example, you can get away with infidelity, a serious road accident, or an attempt to launder dirty money. But tax crimes, whether voluntary or involuntary, are condemned without reservation.
The same can be said about tax debts. If a person has outstanding financial obligations to the IRS, he or she will get several reminders, an offer of legal assistance, or an individual restructuring project (compromise agreement). But if the tax debts grow and exceed the qualification criterion of USD 55,000 (which is the amount subject to annual inflation adjustment), the U.S. passport can be revoked upon request of the IRS (read our article to get additional information on IRS, foreign income, tax deductions, and FATCA).
Not satisfied with your current tax residency? Fortunately, it can be changed! Schedule a free individual consultation with our expert to get assistance in choosing the appropriate jurisdiction and a suitable program to meet your particular needs.
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It should be noted, though, that a US passport is practically not used domestically, so its loss means practically nothing if the debtor is not going to travel abroad. He will continue to be a person with outstanding financial obligations to the IRS, but there will hardly be any drastic changes to his or her ordinary life in the USA.
The most unpleasant situation may occur under the following circumstances: your US passport is revoked at the time when you are abroad, or when you are going to leave the country. In the first case, you will get a replacement passport with limited validity. You will be able to use it for the purpose of returning to the United States, but it will not allow you to stay abroad for a long time. The second case is simpler: you just will not be allowed to cross the US border.
There is one way to avoid the above problems: you should have two passports in case one of them fails! Take time to discover numerous second citizenship programs available on the market. It is easy to obtain a second passport, but you should have a minimum time reserve. The dual citizenship is not something you can get quickly: it is a long-term project with great prospects and opportunities.
Let’s make it clear that a second passport is in no way a method of “legal” tax evasion in the United States! You will still have to pay the debts, but you will not be stuck in a situation when you need to travel (or do anything else where a passport is required) and you cannot do so due to restrictions. It is freedom from limitations, but not from taxation itself! If you feel that you need to do something about your taxes, read our article on effective tax optimization in the United States by establishing a company in Belize and a management company in Wyoming.
IRS Debtor Information Policy
The US tax administration is often blamed for its harsh approach to tax collection, persecution of tax evaders, and aggressive methods of tax optimization for as long as one wants. And there will definitely be a grain of truth in all that.
Let’s be just, though: the IRS never sought to frame the debtor, and it usually works very actively with those who “forget” (or cannot) pay taxes, in part or in full. Therefore, a situation where you suddenly learn that you have large tax arrears is almost impossible in the United States. You cannot accuse the IRS of backstabbing, and this is a fact that should be admitted.
The principles and rules used by the IRS to inform and work with debtors:
- A special notice/Form CP508C will be sent to the debtor’s last known address.
- The physical refusal to issue a passport (or its revocation and replacement with a document that has a limited validity period) never happens suddenly: the debtor will be given a chance to rectify the situation (by making the full payment or restructuring the debt), and this special period lasts for 90 days.
- The IRS may request the passport revocation if the debtor breaches an earlier agreement to pay the debt (with full or partial restructuring applied). But before that, the debtor will receive a standard letter/form by mail, which will contain a reminder of the debt and a request to contact the IRS with an indication of all communication channels.
- If the debtor goes abroad, the IRS most often submits a request for accelerated certification cancellation in the State Department, and the period should be reduced to 9 days instead of the standard 30 days
- If the debtor has outstanding tax liabilities, it is technically possible to travel abroad (depending on the amount of debt and the history of relations with the IRS, of course). However, we strongly recommend that you notify the IRS of your plans at least 45 days in advance.
- Legally, a U.S. citizen in tax arrears may file a lawsuit with the U.S. Tax or District Court for erroneous certification by the IRS. But practice shows that the probability of a positive decision is rather low.
- If the court takes the debtor’s side, the tax debts are fully paid, or an agreement is reached with the IRS, the Revenue Service will notify the State Department, make the necessary changes to the databases within 30 days, and send a standard CP508R notification to the debtor’s address.
Avoiding Passport Revocation: Option No. 1
The IRS usually considers each case individually, so your passport will never be automatically revoked if you have debts – no matter how large they are. Even though the IRS policy against taxpayers may be regarded as rigid to some extent (as we have said earlier), we still cannot talk about despotism. The IRS has never been “white and fluffy,” and the way debtors are dealt with is quite strict. However, their methods of work are quite logical and predictable, and are in no way designed solely for penalties.
Passport revocation at the request of the IRS: things to be taken into consideration
- The penalty mechanism is triggered only in case of a seriously delinquent debt.
- If the amount of outstanding tax liabilities does not exceed USD 55,000 (the amount is adjusted for inflation every year), it seems extremely unlikely (but possible) that your US citizen’s passport will be revoked.
- All outstanding tax liabilities are taken into account if they are documented.
- If the debtor is in contact with the IRS and is indeed unable to fully pay all the existing financial liabilities to the IRS, the likelihood that the most severe measures will be applied is rather low.
- The IRS never sends the information on debts to the State Department automatically.
The following debts are not considered serious overdue debts:
- Penalties in the report of a foreign bank (FBAR, Foreign Bank and Financial Accounts).
- Overdue tax liabilities if a restructuring/installment agreement has been reached with the debtor.
- The tax debts that have been formally requested for special debt collection hearings.
- Suspended tax debts if the reason for the pause was a request for innocent spouse relief.
- Tax liabilities repaid on the basis of the installment/restructuring agreement.
Alternatives that can help avoid passport revocation:
- Bankruptcy of the tax debtor.
- The debtor was officially certified as a victim of malicious intent aimed at identity theft if the latter was related to tax obligations.
- The IRS classified the case as unrecoverable (e.g. due to insurmountable technical difficulties).
- The debtor is located in the disaster area (if the relevant announcement was made at the official level).
- The debtor is in the combat zone.
Avoiding Passport Revocation: Option No. 2
All of the options discussed above are largely compromise solutions. They do not radically solve the problems associated with the risk of passport revocation but only mask them. And this solution is quite efficient, but surely not the best.
If you are interested in a comprehensive solution to the problem and reliable protection, you can book a session with our experts to discuss the option of obtaining a second citizenship in any suitable offshore Caribbean archipelago.
The second passport issued by Saint Kitts and Nevis, Antigua and Barbuda, Saint Lucia, Grenada, or Dominica will not exempt you from the tax obligations to the IRS but will provide the flexibility of choice. In addition, the second citizenship will give you an additional level of protection in case of any unforeseen situations both in private life and in business.
Basic benefits of the Caribbean passport
- The minimum waiting time is 2-6 months.
- Low financial threshold of entry – from USD 100,000 (additional costs and payment for the services of International Wealth experts are not included in the amount).
- Remote procedure: dual citizenship in the Caribbean can be obtained without visiting a particular country.
- A large selection of countries for visa-free visits: at least 140, but the exact number depends on the particular offshore destination.
- 10-year US tourist visa that can be received within 2-3 weeks.
- Benefits related to university education in the UK (thanks to the fact that all Caribbean offshore countries are members of the British Commonwealth of Nations).
- The second citizenship of the Caribbean does not invalidate the current citizenship of the United States or any other country.
- Simplified and accelerated procedure for opening personal accounts with leading European banks.
- Preferential taxation system.
|Jurisdiction||Minimum investments||Terms of the second citizenship acquisition|
|Antigua and Barbuda||From USD 100,000||3-6 months|
|Grenada||From USD 150,000||4-6 months|
|Dominica||From USD 100,000||3-6 months|
|Saint Lucia||From USD 100,000||3–4 months|
|Saint Kitts and Nevis||From USD 150,000||2 to 6 months|
Caribbean passport: main investment options (these may differ depending on the specific jurisdiction)
- Non-refundable contribution to the State Development Fund
- Contribution to the higher education institution
- Real estate acquisition
- Opening (registration) of a new business
- Acquisition of government bonds
- Investments in business
The conclusions based on the information contained in the article are obvious: if you have tax obligations in the United States, fulfill them in a timely manner and avoid delays whenever possible. If you get stuck in financial problems, contact the IRS as soon as possible to discuss the current situation and possible options for further action.
If you are interested in the highest possible level of protection, think about obtaining a second citizenship. It may be an offshore jurisdiction in the Caribbean region, but this is not the only option (although it is the most optimal one).
We would also like to note that investment projects aimed at obtaining second citizenship are strictly individual and they require prior planning and taking into account all the existing circumstances. Detailed information on citizenship by investment programs can be found in our special article.
Examples of popular services in the USA provided by the experts of our portal:
- Incorporation of an LLC in the USA, Delaware.
- Registration of an LLC in Wyoming, USA for Non-Residents.
- Business Accounts in the USA with CITIBANK US: Remote Pre-approval, On-site Opening.
Examples of popular services provided by the experts of our Citizenship By Investment Portal (based on Caribbean jurisdictions):
If you are interested in dual citizenship, be sure to contact the experts of the International Wealth portal and develop a tactical and strategic solution for further action at a personal consultation. Email us at firstname.lastname@example.org or use alternative communication channels.