A new law enacted in January 2016, the “Fixing America’s Surface Transportation Act” (FAST), would seem to be a very helpful and positive step toward repairing the nation’s crumbling transportation infrastructure. Indeed, the U.S. Department of Transportation calls FAST “a down-payment for building a 21st century transportation system.”
But, as with a number of laws that have worked their way through the halls of Congress, FAST has been used as a vehicle to pass many provisions and amendments that have no direct connection with building roads and bridges. One of the lesser publicized provisions in the FAST Act authorizes the denial of a U.S. passport application or the revocation of a current passport for individuals who have more than $50,000 in unpaid federal taxes.
Citizens in arrears to the IRS for $50,000 or more are no longer able to obtain a new passport or renew an expiring passport. More disconcerting to the millions of Americans living and working abroad, an outstanding tax could result in revocation of their passport, which is essential for overseas travel, identification and financial transactions. In many cases, the taxpayer may not be aware of their tax delinquency unless and until they return to the U.S., where U.S. Customs is now authorized to seize and hold the passport until the tax debt is paid or, if the tax bill is disputed, a Tax Court case decides in favor of the taxpayer.
Complex Tax Rules for U.S. Expatriates
U.S. citizens living and working abroad face a confusing array of tax regulations from both the U.S. and their host countries. The U.S. taxes its citizens on all income, no matter where in the world it was earned. Taxpayers living overseas must also report their foreign financial assets every year. This makes it imperative that expatriates receive guidance and advice from a tax professional who understands the complex nature of the process. This is not always the case when the taxpayer relies on a local accountant in their country of residence.
To complicate the issue, tax delinquency may be calculated on taxes owed before taking into account foreign tax credits and other applicable deductions on foreign income paid to the non-U.S. country of residence. In a “worst case” scenario, a citizen living abroad could have their passport revoked for a tax debt that, if the proper tax forms had been filed, would not even exist.
The potential for loss of a passport through the FAST Act makes it more essential than ever for U.S. citizens living and working in foreign countries to receive qualified tax advice in order to make sure they remain in compliance with U.S. tax laws.
If you have any questions about the FAST Act or tax laws governing foreign income and assets, please contact Gray, Gray & Gray’s Tax Department at (781) 407-0300.