Like most taxpayers caught up in the passport revocation process, Mr. Adams has not been a model taxpayer citizen.  He failed to file returns for most of the years between 2007 and 2015 which caused the IRS to prepare substitute returns pursuant to IRC 6020(b).  These returns created assessments totaling over $1.2 million which significantly exceeds the amount of liability needed to have one’s passport revoked.  As part of its collection efforts, the IRS filed a notice of federal tax lien.  Following the filing of the notice, the IRS sent the required Collection Due Process (CDP) notice to Mr. Adams.  He did not request a CDP hearing.  The CDP notice meets one of the prerequisites for making a referral to the State Department.

At the time of the case, the State Department had not taken any action regarding Mr. Adams’ passport; however, he reported that he had lost his passport and intended to file for a replacement.  He did make a request for a new passport while his Tax Court case was pending and received a response from the State Department alerting him that the IRS had certified his liability as seriously delinquent and he needed to work out the tax issue with the IRS before it would move forward on issuing a new passport.

The Tax Court described its role in a passport revocation case drawing from its prior case law:

Section 7345(e)(1) permits a taxpayer who has been certified as having a seriously delinquent tax debt to petition this Court to determine “whether the certification was erroneous or whether the [IRS] has failed to reverse the certification.” Our jurisdiction in reviewing certifications of seriously delinquent tax debts is set forth in section 7345(e)(1). If we find that a certification was erroneous, we “may order the Secretary [of the Treasury] to notify the Secretary of State that such certification was erroneous.” I.R.C. § 7345(e)(2). The statute specifies no other form of relief that we may grant. Ruesch v. Commissioner, 25 F.4th 67, 70 (2d Cir. 2022), aff’g in part, vacating and remanding in part 154 T.C. 289 (2020).

The Court quickly agrees with the IRS that the facts here meet the basis for certification.  It knocks down the two arguments made by Mr. Adams.  First, he argued that the IRS lacked admissible evidence that the notices of deficiency giving rise to the assessments were mailed to his last known address.  Second, he argued that the taking of his passport is unconstitutional because it violates his right to international travel.

The Court notes that his first challenge could be read as a substantive challenge to the liabilities.  The Tax Court had previously answered this question in Ruesch v. Commissioner, 154 T.C. 289 (2020); however, that opinion was affirmed in part and vacated in part because of mootness at 25 F.4^th 67 (2^nd Cir. 2022).  So, the Court goes into an analysis of what happens to an opinion when a judgment is vacated.  It notes that vacature “deprives the underlying opinion of any precedential effect.”  Nonetheless, the vacated opinion can still provide value.  The Court states:

Although an opinion issued in connection with a vacated judgment retains no precedential effect, if the judgment is vacated for reasons unrelated to the opinion’s analysis of an issue, nothing precludes a future court from considering that analysis as persuasive authority. To illustrate, in Seminole Nursing Home, Inc. v. Commissioner, 12 F.4th 1150 (10th Cir. 2021), aff’g T.C. Memo. 2017-102, the U.S. Court of Appeals for the Tenth Circuit recently accepted our Court’s reliance on a previous decision, Lindsay Manor Nursing Home, Inc. v. Commissioner, 148 T.C. 235 (2017), vacated on other grounds, 725 F. App’x 713 (10th Cir. 2018), that had been vacated by the Tenth Circuit for mootness. Explaining its rationale, the Tenth Circuit stated: “[W]e vacated [the Tax Court’s] ruling only because the case had been moot at the time of the ruling. . . . It was hardly an abuse of discretion for the Tax Court to continue to adopt that court’s prior reasoning when no higher court had cast doubt on that reasoning.” Seminole Nursing Home, Inc. v. Commissioner, 12 F.4th at 1160. for the Tax Court to continue to adopt that court’s prior reasoning when no higher court had cast doubt on that reasoning.” Seminole Nursing Home, Inc. v. Commissioner, 12 F.4th at 1160.

The Ruesch opinion was vacated because of mootness similar to the opinion in Lindsay Manor.  So, the Tax Court readopts its opinion in Ruesch.  This means that that Tax Court’s position is that it lacks the ability to redetermine the amount of a taxpayer’s liability.  The readoption of the reasoning in Ruesch, a precedential opinion, is undoubtedly the reason for making the Adams case precedential.  It’s no surprise the Court would readopt its prior position and the opinion provides a useful analysis of what to expect when a Tax Court precedential opinion is vacated at the circuit level for reasons having nothing to do with the underlying analysis.

Because the Court seeks to give the pro se taxpayer the benefit of possible arguments he makes, it looks at another possible facet of his attack on the underlying assessment.  It interprets his argument as stating that the underlying liabilities were not assessed and notes that liabilities must be assessed before the IRS can move forward with passport revocation.  It further refines the argument of Mr. Adams to be that although the IRS did take the steps to record his liabilities on its books, viz., to assess the liabilities, it did so wrongfully because it failed to take the necessary steps make the assessments.  The Court finds that it lacks jurisdiction to consider the correctness of the assessments.  It can merely confirm that the assessments existed at the time of the passport revocation referral.  It notes that he had numerous opportunities to contest the validity of the assessments and passed on those opportunities.  It finds that IRC 7345 does not provide another opportunity for challenging whether the assessments were properly made.

The Court then turns to his constitutional argument in which he urges the Court to reconsider its opinion in Rowen v. Commissioner, 156 T.C. 101 (2021) which held that IRC 7345 authorizes the IRS to send a revocation letter to the State Department.  The IRS does not deprive a taxpayer of the right to international travel by sending the passport revocation letter.  The Tax Court takes the position that it lacks jurisdiction to review the State Department’s determination.

So, Mr. Adam’s gets no relief from his passport or assessment problems through this case.  The Adams case primarily restates the Tax Court’s prior positions regarding IRC 7345 and breaks little or no new ground regarding a petitioner’s right to relief.  If Mr. Adams wants relief, he needs to pay off the taxes or take one of the other steps that will cause the IRS to generate a letter to the State Department requesting it to restore his travel rights.  To end where we began, you can find a deeper discussion of those issues in Chapter 14A-17[2] of IRS Practice and Procedure.

I note but will not discuss that in addition to his claim that the passport revocation scheme violated his 5^th Amendment due process rights, Franklin raised other challenges to the 6676 penalty. The Fifth Circuit held that those challenges ran afoul of the Anti-Injunction Act.

The main part of the Franklin opinion addresses the claim that the government’s power to restrict travel violated Franklin’s substantive due process rights. Substantive due process “protects individual liberty against ‘certain government actions regardless of the fairness of the procedures used to implement them.’” Collins v. City of Harker Heights, 503 U.S. 115, 125 (1992) (quoting Daniels v. Williams, 474 U.S. 327, 331 (1986)).

The Fifth Circuit disagreed with Franklin. In so doing, it parsed a number of Supreme Court cases that have explored whether there is a fundamental right to international travel. That inquiry is important, because if government action impinges on a fundamental right, the court applies “strict scrutiny” to the legislation, and governmental restriction of a fundamental right must be “narrowly tailored to serve a compelling state interest.” Washington v. Glucksberg, 521 U.S. 702, 720–21 (1997).

In the absence of a fundamental right, typically the court applies a rational basis test, and the “restriction at issue survives as long as it is ‘rationally related to a legitimate government interest.’” quoting  Reyes v. N. Tex. Tollway Auth., 861 F.3d 558, 561 (5th Cir. 2017). The Fifth Circuit held that while there is a fundamental right to interstate travel there is no similar fundamental right to international travel. In so doing, the opinion discusses how courts view whether a right is fundamental:

[W]hether that right is “‘deeply rooted in this Nation’s history and tradition’ . . . and ‘implicit in the concept of ordered liberty,’ such that ‘neither liberty nor justice would exist if [the right was] sacrificed.’” Glucksberg, 521 U.S. at 721 (first quoting Moore v. City of E. Cleveland, 431 U.S. 494, 503 (1977), then quoting Palko v. Connecticut, 302 U.S. 319, 325, 326 (1937)). The Supreme Court has cautioned that, because declaring a right as fundamental “to a great extent . . . place[s] the matter outside the arena of public debate and legislative action,” courts should “exercise the utmost care whenever [they] are asked to break new ground in this field.” Id. at 720 (quoting Collins, 503 U.S. at 125).

For sure there is lots of room for debate on whether something is deeply rooted in history and tradition or implicit in the concept of ordered liberty. And the Fifth Circuit acknowledged some earlier Supreme Court opinions that framed international travel as a fundamental right, though it pointed to later opinions that distinguished travel within the states as compared to travel to differing countries. For example in Haig v Agee, the Supreme Court made that distinction when considering the revocation of the passport of an ex CIA agent who threatened to reveal secrets:

“[T]he freedom to travel outside the United States must be distinguished from the right to travel within the United States.” 453 U.S. 280, 306 (1981).

The Fifth Circuit acknowledged that other opinions that have considered the constitutionality of Section 7345 have applied an intermediate type scrutiny, recognizing the importance of the right to international travel (Keith discussed one of those cases, the 10^th Circuit’s Maehr v US, in Passport Revocation Cases Part 2). Intermediate scrutiny requires that the challenged restriction “must serve important governmental objectives and must be substantially related to achievement of those objectives.” Craig v. Boren, 429 U.S. 190, 197 (1976).

In acknowledging the importance of all travel the opinion states that “Franklin is correct in his assertion that the right to international travel is not a new creation unmoored from our past, but instead can be traced through the ages from Magna Carta to Blackstone to the Declaration of Independence to the modern Universal Declaration of Human Rights.”

While declining to decide whether it should be required to apply rational basis or intermediate level scrutiny, the opinion stated that even under intermediate scrutiny it would find the scheme constitutional. The money paragraph in the opinion essentially ties the revocation powers to the essential government interest in collecting revenue:

Even under the higher standard of intermediate scrutiny, the FAST Act’s passport-revocation scheme is constitutional. The government’s interest in collecting taxes, which animates the FAST Act’s passport-revocation scheme, is undoubtedly an important one. See, e.g., Hernandez v. Comm’r, 490 U.S. 680, 699 (1989) (“[E]ven a substantial burden would be justified by the ‘broad public interest in maintaining a sound tax system’” (quoting United States v. Lee, 455 U.S. 252, 260 (1982))); Flora, 362 U.S. at 154 (“It is essential to the honor and orderly conduct of the government that its taxes should be promptly paid[.]”). The passport-revocation scheme is also clearly connected to that goal: delinquent taxpayers will be well-incentivized to pay the government what it is owed to secure return of their passports, and those same taxpayers will find it much more difficult to squirrel away assets in other countries if they are effectively not allowed to legally leave the country.  (emphasis added).

The opinion notes as well that the passport revocation statute targets larger tax debtors and thus “does not sweep beyond what is necessary to achieve Congress’s goal of trying to recoup the $5.8 billion or more in delinquent taxes owed to the government.”

The opinion continues on the theme that the legislation is targeted:

[W]hat Congress provided was an arrow, not a bazooka. Its chosen tool is carefully aimed at the problem, not fired indiscriminately with grave risk of collateral damage to the rights of those not covered by the scheme.

Conclusion

This is the third circuit to uphold the constitutionality of the passport revocation statute, and while it acknowledges that international travel is not to be taken lightly, the opinion is a major government victory for an important collateral tool to collect from taxpayers who have failed to pay sizable liabilities.

Rowen

The Tax Court decision in Rowen v. Commissioner, 156 T.C. No. 8 (2021) addresses the constitutionality of the passport revocation provision from the perspective of the power that IRC 7435 gives to the IRS.  Because it finds that the IRS does not play a decisive role in restricting a taxpayer’s right to international travel, the Tax Court grants summary judgment to the IRS on the constitutional argument.

The Rowen case provides some reason for believing that the taxpayer in Maehr had the right idea to sue the State Department rather than the IRS.  The Tax Court states that Mr. Rowen’s argument that IRC 7345 violates the 5^th Amendment right to international travel has no merit because:

The plain text of section 7345 imposes no prohibition on international travel. Section 7345 merely provides a process by which the Commissioner may certify to the Secretary of the Treasury the existence of a seriously delinquent tax debt and the Secretary of the Treasury in turn transmits that certification to the Secretary of State.  Section 7345 expressly leaves all passport-related decisions for “action” by the Secretary of State.

Since the statute does not give the IRS power to revoke someone’s passport, the IRS has not violated anyone’s due process rights by simply certifying a case to the State Department.  The court also notes that on the record of this case there is no indication that the State Department has actually revoked his passport.

Mr. Rowen also argued that IRC 7345 violates the Uniform Declaration of Human Rights.  The Tax Court does not agree that IRC 7345 violates the provisions of this treaty but finds that even if it were to violate that treaty, the section does not impose limits on international travel. 

After addressing two other issues raised in the petition but not argued, the Tax Court grants summary judgment to the IRS.  It’s clear that a constitutional argument will go nowhere at the IRS or the Tax Court.  For taxpayers who want to make a constitutional argument regarding IRC 7435, coming to Tax Court will merely be a way station on the road to a circuit court.

Maehr

We have not previously discussed Maehr v. U.S. Dep’t. of State, 5 F.4th 1100, 1119 (10th Cir. 2021) decided in July of 2021.  Of the four cases, it takes the most serious look at the constitutional argument and provides, perhaps, the most hope for future litigants.  Rather than suing the IRS, Mr. Maehr sued the State Department for deciding to revoke.  There the 10^th Circuit said:

Passport revocation under the FAST Act is thus an example of a species of tax penalties known as collateral sanctions. “Unlike traditional tax penalties that require noncompliant taxpayers to pay money to the taxing authority, collateral tax sanctions require noncompliant taxpayers to forfeit a nonmonetary government benefit or service.” Joshua D. Blank, Collateral Compliance, 162 U. Pa. L. Rev. 719, 728 (2014). They “increasingly apply to individuals who have failed to obey the tax law,” perhaps because they “can promote voluntary tax compliance more effectively than the threat of additional monetary tax penalties.” Id. at 720. States and the federal government impose a variety of collateral tax sanctions, ranging from diminished housing assistance to the cancelling of driver’s licenses. Id. at 739-40. Passport revocation had not been used to thwart tax delinquency until the FAST Act, but it has been used in the context of non-payment of child support. See 42 U.S.C. § 652(k).

The court first addressed Mr. Maehr’s Privileges and Immunities clause argument.  It finds this argument implausible because:

These clauses apply to states, not the federal government, and Maehr can articulate no way around this fact. Even if the clauses could somehow constrain the federal government, no Supreme Court decision has ever interpreted these clauses as at all relevant to a right to international travel.

Next, Mr. Maehr makes an argument based on the writ ne exeat republica.  I discussed this extraordinary writ here.  This writ allows the government to keep someone from departing or sending their assets out of the US.  It’s a form of civil arrest and in many circuits requires the government to meet the four factor test for a preliminary injunction.  Mr. Maehr wants the court to require the same type of finding with respect to passport revocation that is required by case law regarding the writ ne exeat republica.  The court declines, stating:

Writs of ne exeat differ significantly from FAST Act passport revocations in three ways. First, the scope of ne exeat is much broader, restricting freedom of movement domestically as well as internationally. Second, writs of ne exeat can be issued even if the underlying tax debt is contested by the taxpayer, see, e.g., Shaheen, 445 F.2d at 10, whereas the FAST Act requires that the taxpayer’s rights to challenge a contested liability have lapsed or been exhausted prior to passport revocation. I.R.C. § 7345(c). Third, ne exeat is an essentially equitable common law remedy that has been codified in statute, making it sensible that courts have required showings of evidence paralleling those required for preliminary injunctions. Passport revocation under the FAST Act, in contrast, is a purely statutory and legal scheme with built-in due process protections.

Next, Mr. Maehr argued that the passport revocation infringed his right to travel in violation of substantive due process.  The court spends a fair amount of time discussing the history of the right to international travel for citizens of the US as it searches for the appropriate level of scrutiny.  The court states:

My review of Supreme Court precedent discerns a standard that clearly falls somewhere between rational basis and strict scrutiny. As I read it, the rule the Supreme Court has both announced and remained faithful to is as follows: substantial restrictions on international travel must advance a “legitimate and substantial” interest and must not sweep much more broadly than necessary. Aptheker, 378 U.S. at 508, 84 S.Ct. 1659 (quotation omitted). That rule closely resembles the language used to describe intermediate scrutiny.

Neither party argued for intermediate scrutiny and provided the court with a basis for evaluating how it would apply here.  Under those circumstances, the court decides to uphold the decision of the district court which dismissed his claim on this point as well.  So, Mr. Maehr does not come away with a victory.

The 10th Circuit seems to leave the door ajar for an attack on the passport revocation power under intermediate scrutiny.  It did not make a positive decision that the statute passed the test under that scrutiny.  The 10^th Circuit’s decision suggests the possibility that if intermediate scrutiny was applied to the State Department’s role under the statutory scheme, the statute may not satisfy the constitutional requirements; however, I think that outcome is unlikely based on the precedent in the unpaid child support cases that formed part of the basis for this statute and because the 10^th Circuit’s decision did not crack the door open very far.  The statute is young.  More litigation will occur, perhaps taking the issue to the Supreme Court.  Because most of the litigants present fairly unsympathetic situations, persons interested in advancing these arguments might search for someone who will evoke more sympathy than Mr. Maehr or Mr. Rowen.

Hupp

The IRS sued the Hupps to reduce the $1.1 million tax debt to judgment.  While the suit was pending, their son decided to get married in the Dominican Republic.  Naturally, the Hupps wanted to attend the wedding; however, the passport revocation provisions got in the way.  They filed a motion in the suit brought by the IRS seeking to get the district court to issue an order allowing them to obtain their passports so they could travel to the wedding.  Of course, the court does not want to stand in the way of the Hupps attending their son’s wedding, but the procedural hurdles prove too much to allow the trip to take place.  We don’t learn from the opinion whether the son went forward with the wedding in the Dominican Republic or relocated it to a US destination in order to allow his parents to attend.

The Hupps put the court under some pressure because they filed their motion on June 1, 2021 seeking to attend a wedding scheduled for June 12, 2021.  They noted that they had already purchased their tickets and were scheduled to fly out on June 9, 2021.  It turns out that the IRS response revealed it had only sent the wife’s name to the State Department as having seriously delinquent debt even though her husband is jointly liable.  We also do not learn why the IRS chose only to certify her debt to the State Department.  We also do not learn from the case whether the husband chose to go since he did not have the travel restriction (yet).

The first hurdle they encounter concerns the making of their request as a counterclaim to the suit to foreclose:

While the Hupps have undoubtedly chosen the wrong mechanism to bring their challenge before the Court, the underlying issue—if properly brought—is necessarily not barred by sovereign immunity. The Hupps’ motion might be read as challenging the § 7345 certifications as erroneous—that their debt does not qualify as a “serious delinquent tax debt” under § 7345(b). This challenge itself is not barred by sovereign immunity, as § 7345(e) does expressly allow the Government to be sued to challenge the certification. However, the statute is clear that it must bring a new civil action against the Government. The statute cannot be read to authorize a counterclaim against the Government in a tangentially related suit.

The court skirts the procedural problem to look at the merits of their concern.  It notes that they do not argue the certification of the debt was erroneous.  Instead they argue it was unjustified.  In an effort to potentially assist them, the court interprets this argument as one in which they seek to say the statute infringes on their constitutional right to international travel which cannot be deprived without due process.  The court notes that such a restriction must be rationally related to a legitimate governmental interest.  It finds that:

Here, § 7345 passes the rational basis test. The collection of seriously delinquent tax debts is a legitimate governmental interest. See, e.g., United States v. First Nat’l Bank of Chi., 699 F.2d 341, 346 (7th Cir. 1983) (stating that the United States’ interest in collecting taxes “is of importance to the financial integrity of the nation”); Jones, 2021 WL 864954, at *6. Restricting the issuance and renewals of passports is rationally related to this interest for the very reasons the Hupps offer: (1) apply pressure to resolve tax debt; (2) to avoid hiding and then accessing money in offshore accounts; and (3) to limit one’s ability to flee the country to avoid taxes. The Hupps argue that the statute is not justified as applied to them because they intend to pay their taxes, are not hiding money in offshore accounts, and do not intend to flee the country to avoid their taxes. However, that the Hupps claim they will meet their tax obligations even if the Government does not use this tool to pressure collection, does not make the statute unconstitutional.

So, the court denies their motion.  The IRS probably sought to levy on any refund the Hupps claimed from the airline.

Franklin

In Franklin v. United States, 128 AFTR 2d 2021-6140 (N.D. Tex. 2021) the IRS assessed penalties of over $400,000 based on failure to report income from a foreign trust.  Essentially, Mr. Franklin sought to skirt the Flora full payment rule by bringing a host of actions against the IRS in the hopes that one would allow him to contest the underlying assessment.  He wants to argue that the IRS failed to meet certain procedural requirements, viz. IRC 6751(b), before making the assessment.  The effort to get to an argument about the underlying liability failed.

In total, Mr. Franklin brings a quiet title action under 28 USC 2410, a failure to release lien action under IRC 7432, a wrongful collection action under IRC 7433, a request for declaratory judgment relief, a review under the Administrative Procedure Act, and finally, he throws in a challenge to the revocation of his passport.  The court addresses each in turn, explaining why the government has not waived sovereign immunity for each and why he cannot get anywhere in the suit.  I will provide a discussion of the passport count where he challenged the constitutionality of the statute as violating his procedural and substantive Due Process right to travel internationally.

With respect to procedural due process, the court finds that Collection Due Process gave Mr. Franklin an opportunity to contest the tax debt prior to certification.  With respect to substantive due process, the court finds that the right to international travel is not a fundamental right.  It then finds that the passport statute meets the rational basis test because it serves the legitimate purpose of aiding the government’s revenue stream.  The decision does not break new ground but affirms the decision made in Maehr v. U.S. Dep’t. of State, 5 F.4th 1100, 1119 (10th Cir. 2021).

In tomorrow’s post, I will discuss Maehr and another constitutional challenge in the Tax Court case, Rowen v. Commissioner.