Comparatively speaking, Section 7345 is a relative newcomer to the Code. Enacted in late 2015 as part of the Fixing America’s Surface Transportation Act (“FAST Act”), it permits the Government to deny U.S. passport applications or revoke already issued passports if a taxpayer has a federal income tax debt that is “seriously delinquent.”
Last year, during a Treasury Inspector General for Tax Administration (“TIGTA”) audit, the IRS indicated that it had certified approximately 390,000 taxpayers as having seriously delinquent tax debts under Section 7345. Because this certification serves as the initial trigger for a later denial or revocation by the U.S. Department of State (“State Department”), it is unsurprising that the addition of Section 7345 to the IRS’ collection tools has had a notable effect in nudging non-compliant taxpayers to come forward with and address their outstanding tax obligations.
But passage of Section 7345 was not without some controversy. Specifically, many legal commentators (and even the then National Taxpayer Advocate) expressed reservations and concerns that the statute may not be constitutional due to its restraint on the rights of U.S. citizens to travel overseas. However, on February 28, 2020, the United States District Court for the District Court of Colorado rendered its decision in Maehr, holding that the statute was constitutional.
Section 7345
Section 7345 requires the Treasury Secretary to transmit certifications to the State Department – the United States government agency which overseas U.S. passports – when taxpayers have seriously delinquent tax debts. Generally, tax debts become seriously delinquent when they are unpaid, legally enforceable, and assessed in amounts of more than $53,000 (adjusted annually for inflation).[1] In addition to these requirements, a tax debt becomes seriously delinquent when the IRS issues a notice of federal tax lien or makes a levy for such amount.
Predictably, the statute has exceptions. First, a tax debt does not qualify as seriously delinquent if the taxpayer has successfully proposed a collection alternative, such as an installment agreement or offer-in-compromise, and the taxpayer makes timely payments towards it. Second, a tax debt is not seriously delinquent if the taxpayer has requested a Collection Due Process hearing or such hearing is pending. Third, a tax debt is exempted from Section 7345’s reach if the taxpayer has made a request for innocent spouse relief.
Through administrative guidance, the IRS has further indicated that certain tax debts do not qualify. For example, a tax debt related to Title 31 penalties for failure to timely file an FBAR is exempt in addition to non-tax liabilities collected by the IRS as criminal restitution. Moreover, the IRS will not certify taxpayers as having seriously delinquent tax debts when in bankruptcy, a victim of identity theft, or if the taxpayer’s account is determined as currently not collectible due to hardship.
Notice CP508C and Judicial Review
After the IRS certifies a tax debt as seriously delinquent, it mails the taxpayer a Notice CP508C.[2] Thereafter, the State Department will notify the taxpayer of its decision to deny the taxpayer’s U.S. passport application or to revoke an existing passport.
If the taxpayer disagrees with the certification, he or she can file a lawsuit against the United States in federal district court or in the U.S. Tax Court. Such court has jurisdiction to determine whether the certification was erroneous or whether the IRS failed to reverse the certification.[3] The court also has jurisdiction to order the Treasury Secretary to notify the State Department that the certification was erroneous.
IRS Chief Counsel has issued a Notice (CC-2018-005) regarding Section 7345 and judicial review. In the Notice, IRS Chief Counsel opines that: (1) taxpayers may not seek judicial review of the amount of the seriously delinquent tax debt because Section 7345 does not waive the United States’ sovereign immunity and that any such challenge would violate the Tax Anti-Injunction Act; (2) the general six-year statute of limitations period under 28 U.S.C. § 2401(a) applies to file the lawsuit; and (3) judicial review should be limited to the IRS’ administrative record and whether the certification or failure to reverse was “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.”
Maehr v. United States
In Maehr v. United States, No. 18-cv-02948-PAB-NRN (D. Colo. Feb. 28, 2020), the IRS certified to the State Department that Mr. Maehr had seriously delinquent tax debts of approximately $250,000. Thereafter, the State Department sent Mr. Maehr a letter notifying him that his passport had been revoked and requesting its surrender. After voluntarily surrendering his passport, Mr. Maehr filed a lawsuit against the State Department.[4]
In his lawsuit, Mr. Maehr argued that Section 7345 violated his constitutional rights to international travel. More specifically, he asserted that revocation of his passport violated his: (1) constitutional right to international travel under the Privileges and Immunities Clause; and (2) constitutional and fundamental rights under the Due Process Clause to travel abroad.[5]
The district court disagreed with Mr. Maehr’s Privileges and Immunities Clause argument. Specifically, the court determined that the Privileges and Immunities Clause did not apply to federal actions such as those in Mr. Maehr’s case and that therefore the appropriate constitutional analysis should be whether revocation of his passport violated his constitutional rights under the Due Process Clause.
In support of his Due Process argument, Mr. Maehr cited three Supreme Court decisions. See Kent v. Dulles, 357 U.S. 116 (1958); Aptheker v. Sec. of State, 378 U.S. 500 (1964); Zemel v. Rusk, 381 U.S. 1 (1965). However, as discussed more fully below, the district court found each decision inapposite.
In Kent, the Supreme Court held that the Secretary of State lacked the authority to issue regulations permitting the denial of passports to suspected Communists. In that decision, the Supreme Court specifically noted that “the right to travel is part of the ‘liberty’ of which the citizen cannot be deprived without the due process of law under the Fifth Amendment.” But the district court also concluded that the Court failed to reach the issue of constitutionality or decide the contours in which the right could be curtailed. See also Doe v. Haslam, 2017 U.S. Dist. LEXIS 186130 (M.D. Tenn. Nov. 9, 2017) (“At most, . . . Kent offers dicta suggesting that the right to constitutional international travel is entitled to some protection, but leaving open the question of how much protection that is.”).
The district court also concluded that Aptheker was not helpful to Mr. Maehr’s case. Aptheker held that certain federal legislation, preventing members of the Communist Party from obtaining or using passports, was unconstitutional on its face. Similar to Kent, the Court reasoned that the right to travel was important to individual liberty and could not be deprived by the federal government without due process of law. But although the district court recognized that the Court in Aptheker utilized a test similar to the test used by courts for fundamental rights, the district court concluded that the Court failed to specify that the right to international travel was a fundamental right.
Mr. Maehr’s last hope was the decision in Zemel. In that case, the Supreme Court reasoned that the right to travel within the United States was constitutionally protected but that such protection was not without limits. The Court also reasoned that it was the same with international travel. Based on the language in the decision, Mr. Maehr argued that Zemelsupported his position that international travel rights were fundamental rights because the Court did not treat such rights as less important than the right of interstate travel. The district court found this argument unpersuasive, however, as the Supreme Court did not specifically hold that the right to international travel was a fundamental right.
Rather, the district court reasoned that the Supreme Court’s decision in Califano v. Aznavorian, 439 U.S. 170 (1978) confirmed the Supreme Court’s prior cases which had held there was no fundamental right to international travel. In that case, the Supreme Court recognized that the constitutional right to interstate travel was “virtually unqualified” but the right to international travel “ha[d] been considered to be no more than an aspect of the ‘liberty’ protected by the Due Process Clause.” Given the rationale in Aznavorian, along with other federal court decisions rejecting a higher constitutional review standard for international travel, the district court held that Section 7345 should be analyzed under the much lesser burden of rational basis.
Under this standard, Mr. Maehr was required to show that the revocation of his passport had no rational relation to a legitimate government interest. The Court concluded that Mr. Maehr had failed to sustain his burden and, in fact, specifically concluded that the collection of substantial delinquent tax debts was a legitimate government interest. See also U.S. v. First Nat. Bank of Chicago, 699 F.2d 341, 346 (7th Cir. 1983).
Conclusion
Maehr will certainly not be the last federal court decision to weigh in on whether the denial or revocation provisions in Section 7345 infringe on a taxpayer’s constitutional rights. But taxpayers should bear in mind that in the majority of cases it may be easier (and less costly) to resolve their passport revocation or denial matters through other methods.
As discussed above, taxpayers can have the seriously delinquent tax debt certification reversed through proposing collection alternatives to the IRS, such as an installment agreement or offer-in-compromise. In addition, eligible taxpayers can file a request for innocent spouse relief or request that their account be placed in currently not collectible status. In rarer cases, the taxpayer can assert that certain emergency and humanitarian situations exist warranting reversal of an adverse passport decision directly with the State Department.
International and Offshore Tax Compliance Attorneys
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[1] This amount includes any assessed penalties and interest.
[2] The IRS’ policy is not to send a copy of the Notice CP508C to the taxpayer’s power of attorney.
[3] Section 7345(c) requires the IRS to reverse a certification in three instances: (1) the certification was erroneous; (2) the tax debt has been fully satisfied or becomes unenforceable; and (3) the tax debt on which the certification is based ceases to be a seriously delinquent tax debt (e.g., the taxpayer has entered into an installment agreement).
[4]In this case, Mr. Maehr brought suit against the State Department under 28 U.S.C. 1361 which provides mandamus relief. Mr. Maehr did not bring a lawsuit against the United States under Section 7345 because the relief he sought – the constitutionality of the revocation and not the certification of his delinquent status – could not be reviewed under Section 7345, a point in which the district court agreed.
[5] The distinction between a “fundamental right” and other rights is significant for constitutional purposes. Generally, if the right is respected by the courts as a fundamental right, the government is required under a strict scrutiny test to show that the legislation has a compelling government interest and that such legislation is narrowly tailored to achieve the result. By comparison, if the challenged legislation is only subject to rational basis review, the person challenging the law must show either that the Government has no legitimate interest in the law or policy or that there is no reasonable, rational link between that interest and the challenged law. Examples of fundamental rights recognized by the federal courts include the rights of marriage, privacy, contraception, interstate travel, procreation, custody of one’s child, and voting.
