Limitation on Issues Taxpayer Can Raise in Passport Case

The case of Shitrit v. Commissioner, T.C. Memo 2021-63, points out the limitations on raising issues other than the revocation of the passport when coming into the Tax Court under the jurisdiction of the passport provision.  Petitioner here tries to persuade the Tax Court to order the issuance of a refund but gets rebuffed due to the Court’s view of the scope of its jurisdiction in this type of case.


Petitioner filed his case in Tax Court seeking to reverse certification, to determine he is not liable for any taxes for 2006, and to obtain a $3,000 refund.  While the case was pending, the IRS sent to the Secretary of State a reversal of the certification of petitioner as a seriously delinquent taxpayer.  After sending the letter reversing certification, the IRS moved to dismiss the Tax Court case as moot. 

This motion was consistent with prior Tax Court precedent established in the case of Ruesch v. Commissioner, 154 T.C. 280 (2020). In the Ruesch case, petitioner came into the Tax Court under the jurisdiction of the passport provision and asked the Court to determine whether the IRS had erred in certifying her as a person owing a seriously delinquent tax debt. Petitioner also asked the Court to issue a ruling to determine her underlying tax liability. The IRS had since reversed its classification of petitioner as seriously delinquent, informed the Secretary of State, and moved to dismiss the case as moot. The Court agreed with the IRS and dismissed petitioner’s case, holding that it lacked jurisdiction under IRC 7345 to determine petitioner’s underlying tax liability. The dispute did not, in the Court’s view, give rise to a justiciable controversy because no relief, other than reversal of the erroneous classification (which had already been granted by the IRS), could be granted by the court.

Based on the position of the Tax Court staked out in the Ruesch case, the Court granted the motion of the IRS but gave background on petitioner’s case nonetheless. Petitioner lives in Israel and is a dual citizen of Israel and the US. He did not file a 2006 US federal tax return. The IRS, however, had received third party information returns from three separate parties indicating that he had US income. For his convenience, the IRS prepared an IRC 6020(b) tax return for him.

I am sure that this happened after the IRS mailed him correspondence and probably several pieces of correspondence. Because of where he lived, it is likely he did not receive this correspondence. After sending a notice of deficiency, the IRS assessed the liability it had calculated and eventually the liability, because of the high dollar amount, was assigned to a revenue officer for collection. The IRS sent him a CDP notice which he did not claim.

In 2017, Mr. Shitrit filed US federal income tax returns for 2014, 2015, and 2016 showing his address in Israel. It is worth notice here that being outside of the US for more than six months triggers one of the provisions in IRC 6503 suspending the statute of limitations on collection. The IRS does not always know if a taxpayer is out of the country for more than six months but when it knows this it will input the information so that the collection statute is suspended. The IRS needs this suspension because of the difficulty it has in collecting taxes from taxpayers residing outside of the country. As we have discussed before, the IRS has only built collection language into five of the treaties it has with other countries. In countries with whom it lacks a collection treaty, the IRS can only collect if it can find assets of the taxpayer in the US. One of the benefits to the IRS of the passport provision is that it gives the IRS leverage over individuals in a situation in which it may have almost no leverage in its effort to collect delinquent taxes.

In this case, Mr. Shitrit did not owe the taxes, so the IRS did not need leverage, but the passport provision did cause him to become aware of the problem and to address it. It is unfortunate that the assessment existed since it did not exist through the fault of either the taxpayer or the IRS, but rather through the fault of a third party who stole his identity, triggering the information returns that were sent to the IRS, implicating Mr. Shitrit as someone who earned money and failed to file a return. Everything came to a head when the returns were filed in 2017 because he claimed a $3,000 refund. No surprise that the IRS offset the refund against the outstanding liability created for 2006 with the substitute for return.

Now that it had his correct address, the IRS sent him the seriously delinquent passport notice. He filed the Tax Court petition to address this notice. He retained the law firm of Frank Agostino and, although the opinion does not make this clear, I surmise that Frank’s firm figured out what happened to create the liability and took the steps to unwind the assessment, convincing the IRS that it was not Mr. Shitrit’s income. That worked well for ending the primary problem presented with passport revocation, but the small matter of the $3,000 refund still existed, and Mr. Shitrit sought to have the Tax Court make a determination that he was entitled to that refund.

The Court says that nothing in IRC 7345 establishing jurisdiction for passport revocation cases authorizes the court to redetermine a liability or to determine an overpayment. Among the other cases it cites following this statement, the Court cites to a Collection Due Process case, Greene-Thapedi v. Commissioner, 126 T.C. 1 (2006), which this blog has often criticized. See prior discussions of this issue in the CDP context here and here. There are significant differences between the passport statute and the CDP statute, making some of the criticisms of the decision in Greene-Thapedi not as applicable in this context.

Mr. Shitrit argues that despite prior decisions, IRC 6512 grants the Tax Court jurisdiction to determine an overpayment and IRC 6402 gives the Court the power to order the overpayment. The Court disagrees. Arguments regarding mootness and voluntary cessation follow, with the IRS arguing the decertification has mooted the case and petitioner arguing that voluntary cessation by one party does not necessarily moot a case.

I expect that the IRS will refund the overpayment to Mr. Shitrit as it abates the 2006 liability, since an overpayment will be sitting on that account and the taxpayer has requested the money within the applicable refund period. If it does not, then Mr. Shitrit must incur the time and expense to go back into a different court to seek an order granting him the refund. It’s unfortunate that he could not wrap everything up in one proceeding.

IRM Changes to Passport Decertification and Revocation Procedures

Today we welcome Nancy Rossner who practices with the Community Tax Law Project in Richmond, Virginia.  Nancy is a graduate of the University of Richmond Law School which also happens to be my alma mater.  She recently gave a presentation to the ABA Tax Section Administrative Practice committee as a part of their monthly series of procedure updates and agreed to write this post for us on the topic of her presentation.  We have blogged before about passport revocation here, here, here and here.  As Nancy mentions below, the Tax Court did recently take action to amend the form petition recommended by Carl Smith in one of the earlier post.  Passport cases are now making their way to the Tax Court.  I anticipate we will be blogging about this issue a fair amount over the next couple of years. Keith

Leaving and re-entering the U.S. was made a bit more difficult for Americans by the Fixing America’s Surface Transportation (FAST) Act, signed into law December 4, 2015 and creating IRC Section 7345.  The law requires the IRS to notify the State Department when an individual is certified as owing “seriously delinquent debt,” at which time the State Department then has the authority to deny the individual’s passport application, application for passport renewal, or even revoke any U.S. passport previously issued to that individual.  The IRS recently released a revision to the IRM on July 19, 2019 to provide guidance on passport decertification and revocation. I will be writing about these updates today.  But first, I would like to provide a brief refresher on passport certification and revocation.


In order to be considered a “seriously delinquent tax debt” resulting in certification to the State Department, the debt must be assessed, unpaid, legally enforceable, in excess of $50,000 (indexed for inflation, which brings it to $52,000 for the current year) and meet other conditions outlined in IRM  However, even if a tax debt meets the criteria outlined in IRM, there are certain statutory exclusions from the certification listed in IRC Section 7345(b)(2).  In addition to the enumerated exclusions in IRC Section 7345(b)(2), the IRS also has discretion under IRC Section 7345 to exclude categories of tax debt from certification, despite meeting the criteria in IRM These discretionary exclusions are listed in IRM

Now, when the taxpayer is determined to have a seriously delinquent debt, the IRS is supposed to send the taxpayer a Letter CP 508C informing the taxpayer of the debt certification and providing the taxpayer with 30 days to challenge the notice (increased to 90 days if the taxpayer is out of the country).  If the debt remains unresolved, the IRS sends the taxpayer Letter 6152, Notice of Intent to Request U.S. Department of State Revoke Your Passport, to give the taxpayer one last chance to resolve the debt before recommending passport revocation to the State Department. The taxpayer is entitled to appeal the debt certification to the U.S. Tax Court or a U.S. District Court to have a court determine if certification was erroneous or if the IRS failed to reverse the certification under IRC Section 7345(c).  As per the U.S. Tax Court’s press release dated July 15, 2019, the Court adopted final amendments to its Rules of Practice and Procedure and adopted revisions to Form 1(Petition) among other forms.  As a result, Rule 13. Jurisdiction was updated to include “certification actions with respect to passports” and Rule 34. Petition was updated to include “certification actions with respect to passports.”  These changes are also reflected on the new Petition form which now includes a checkbox for “Notice of Certification of Your Seriously Delinquent Tax Debt to the Department of State.”  Yes, Carlton Smith did get his wish from this previous blog post

The new IRM guidance also provides some updates to the reversal of certification of seriously delinquent tax debt as well as expedited decertification.  As per IRM, the IRS will reverse the certification of seriously delinquent tax debt and notify the State Department within 30 days if the previously certified tax debt is fully satisfied, becomes legally unenforceable or ceases to be seriously delinquent debt (previously delinquent debt ceases to be seriously delinquent tax debt when a statutory exclusion is met).  If the certification is found to be erroneous the IRS will notify the State Department “as soon as practicable” and the IRS will notify the taxpayer once the certification is reversed.  One thing that I have learned as a practitioner at an LITC is that “as soon as practicable” can mean many different things to many different people. The U.S. Tax Court or U.S. District Court may also order the IRS to reverse the certification as a result of tax court litigation.

Importantly, taxpayers may also request expedited decertification, which can shorten the processing time by 2-3 weeks, but the taxpayer must meet all three of the following conditions: 1. The taxpayer meets a condition in Reversal of Certification; 2. The taxpayer states that they have foreign travel scheduled within 45 days and can provide proof of travel OR the taxpayer lives outside of the US; and 3. The taxpayer has a pending application for a passport or renewal, has received notification their passport was denied or revoked, and provides a denial letter from the State Department (read: not the CP508-C). The updates to the IRM made proof of travel necessary in 2. and a copy of the State Department denial letter necessary in 3.  There is an exception for taxpayers residing out of the United States who do not have imminent travel plans.  If the taxpayer meets the conditions outlined in IRM or IRM and expresses an urgent need for decertification the IRS is supposed to request expedited decertification.

One last item of note on this topic, according to a recent memo from Acting Taxpayer Advocate Bridget Roberts (TAS-13-0819-0014), effective July 25, 2019, all open TAS cases with a certified taxpayer will be decertified and new TAS taxpayer cases will also be systemically decertified until further notice. This is something for which former NTA Nina Olson advocated prior to leaving office this year.

National Taxpayer Advocate Blogging Again

We do not often write about competing bloggers, but it is worth mentioning that the National Taxpayer Advocate, Nina Olson, is an occasional blogger and has just put up a new post.  Her post addresses the still relatively new and uncharted collection enforcement tool of revoking or denying a passport from a seriously delinquent taxpayer.  This is an issue on which we have posted before.  We have also written briefly about the new Tax Court rules for those who contest revocation or denial of their passport.  To my knowledge there have not been any Tax Court cases yet but to paraphrase from a HBO TV series “Denial is coming.”

Because Nina has an insider’s perspective, her blog may be worth a look (after, of course, you read ours.)

Will Bankruptcy Get Your Passport Back?

Today, we welcome guest blogger Kenneth C. Weil. Ken has his own practice in Seattle that focuses on representing individuals with tax debt and resolving that debt through administrative action with the IRS or through bankruptcy. He has written a book on his specialty area, Weil, Taxes and Bankruptcy, (CCH IntelliConnect Service Online Only) (3d ed. 2014). In 1994 Congress passed the first major set of reforms to the Bankruptcy Code of 1978 but it knew that more reform was necessary. It set up a bankruptcy commission to look into the needed reforms and the reform commission established a tax advisory panel to assist it with the tax aspects of the reforms. Ken served on the tax advisory panel and has continued to be a leading thinker at the intersection of tax and bankruptcy. 

He serves in the leadership of the Bankruptcy and Workouts (B&W) Committee of the ABA Tax Section. The ABA Tax Section met in Los Angeles in late January where Ken participated in a B&W Committee panel with Bankruptcy Judge Mark Wallace of the Bankruptcy Court for the Central District of California, Santa Ana Division. As part of that panel he presented information regarding the new passport revocation/denial rule. I thought this information might be of interest to the blog readers and persuaded Ken to write something for us. Keith

The Operative Language

New I.R.C. § 7345(a) authorizes the State Department to deny issuance, revoke, or limit a passport if the IRS certifies to the State Department that an individual has seriously delinquent tax debt (SDTD). The operable verbs in § 7345(a) are deny, revoke and limit. Denial and revocation are straight-forward. Limitation is not as clear. By way of example, FAST Act § Section 32101 (e) provides a time-limitation clause for return to the United States for citizens whose passports are being revoked.

For certification to occur, there must be SDTD, which is a defined term with four components. Section 7345(b)(1)(A) provides that the tax debt must have been assessed and be legally enforceable before it can be SDTD. (The requirement of assessment means the standard for SDTD is very different from a claim in bankruptcy, which Bankruptcy Code section 101(5) defines broadly). In addition, Section 7345(b)(1)(B) and (C) require both an “age” component and a size component before tax debt can be SDTD. As to the “age” component, for the assessed and legally enforceable tax debt to be converted into SDTD, the tax liability must have been subject to a notice of federal tax lien (NFTL) and the accompanying administrative rights for seeking a collection due process (CDP) hearing are exhausted or have elapsed, or, the tax liability must have been the subject of a levy. Also, the “qualifying” tax debt must exceed $50,000, including penalties and interest, as indexed for inflation. This means there must be $50,000 of SDTD not $50,000 of tax debt.


Even if tax debt qualifies as SDTD, there are events that take the debt out of that classification. Section 7345(b)(2) sets out the events that prevent debt from being SDTD. These events are the taxpayer is (i) in an installment agreement (IA), (ii) making payments under an offer in compromise (OIC), (iii) in a pending CDP hearing or has requested one, or (iv)seeking innocent spouse relief (ISR).

Certification can be reversed. Section 7345(c)(1) provides that certification shall be reversed if the debt “ceases to be seriously delinquent tax debt by reason of subsection (b)(2).” In other words, the events in the previous paragraph will support reversal. Certification can also be reversed if the certification were erroneous or the debt is fully satisfied. This means once certification has occurred a partial payment that takes the SDTD below $50,000 will not be grounds for certification reversal.  Rules for the date by which the certification must be reversed are found Section 7345(c)(2).

Certification information transferred from the IRS to the State Department is limited to the taxpayer’s identity information and the amount of the SDTD. I.R.C. § 6103(k)(11).

Examining Fast Act § 32101 More Closely

A close examination of Fast Act § 32101 raises some interesting nuances and a number of unanswered questions.

Seriously delinquent tax debt. The trigger for certification is not $50,000 of tax debt. It is $50,000 of SDTD. To be SDTD, the tax debt must have been subject to a levy or a NFTL with exhausted/elapsed CDP rights. If the individual has some debt that “qualifies” as SDTD and some debt that does not because the collection process has not progressed far enough, only the “qualifying” debt is used to reach the $50,000 total.

Different rules for liens and levies. There is a slight difference in treatment between liens and levies. Tax debt will not convert into SDTD when the NFTL is filed, if CDP rights remain. The actual phrase used in Section 7345(b)(1)(C) is the administrative rights must “have been exhausted or have elapsed.” The best guess is that tax debt is SDTD if the taxpayer has “only” equivalency hearing rights. In contrast, a levy is sufficient to create SDTD.

CDP-hearing-notice rights that are sent because of a NFTL filing must warn of the possibility of a denial, revocation, or limitation of a taxpayer’s passport. In slight contrast, notices of intent to levy must provide that warning. I.R.C. § 6331(d)(4)(G). Presumably, because the notice is provided in the notice of intent to levy, the requirement of an additional notice was not added to the CDP-hearing notice that accompanies the final notice of intent to levy.

Legally unenforceable. The requirement of legal enforceability in § 7345(b)(1) creates difficult issues in the intersection of bankruptcy and § 7345.

Legally unenforceable: discharge granted but NFTL not released. It is unclear whether the tax debt is legally unenforceable if it has been discharged in bankruptcy but the NFTL is not released. Does the NFTL mean the debt is still legally enforceable? Will it make a difference if the tax debt is discharged, the NFTL remains attached to an asset, and the value of the applicable assets is well below $50,000 even though the discharged debt is well above $50,000? Does it make a difference if the value could, at some point, rise above $50,000? If the taxpayer disagrees with the determination that the debt is legally enforceable, then, judicial recourse is available.

Legally unenforceable: repayment plans in bankruptcy. There is no clear answer whether payments pursuant to plans in Chapters 11, 12, or 13, which presumably make the debt temporarily unenforceable but still owing, bar certification. Consider whether special provisions can be added to plans in Chapters 11, 12, or 13 to provide for payment of the tax debt so that the passport will not be certified for revocation, or, if already certified, so that the certification will be reversed. Normally, a special class is not allowed in Chapter 13 to pay unsecured, nondischargeable tax debt. Copeland v. Fink (In re Copeland), 742 F.3d 811 (8th Cir. 2014), held that discrimination to pay nondischargeable tax debt was not allowed; but, discrimination was allowed if the discrimination was proposed in good faith and the degree of discrimination was directly related to the basis or rationale for the discrimination. If the taxpayer needs a passport to work, then, a special class of debt should be allowed. Will this be a sufficient payment plan to prevent denial of issuance or reversal of certification?

If payments under a plan are considered legally unenforceable, postpetition tax debt where property revests in the debtor under the terms of a Chapter 13 may also create a problem. In re Markowicz, 150 B.R. 461 (Bankr. D. Nev. 1993) found that postconfirmation earnings not committed to a plan were not part of the bankruptcy estate, and, the IRS’s postpetition levy to collect postpetition tax did not violate the automatic stay. Similarly, In re DeBerry, 183 B.R. 716 (Bankr. M.D.N.C. 1995) granted the IRS relief from stay to pursue collection of postpetition taxes outside Chapter 13 plan where all plan payments had been made. In such an instance, will some of the tax be considered legally unenforceable or subject to an IA and some legally enforceable?

When certifications will not be made. Some events remove tax debt from the definition of SDTD. If tax debt is not SDTD, then, certification will not be made. These events are the taxpayer is (i) in an IA, (ii) making payments under an OIC, (iii) in a pending CDP hearing or has requested one, or (iv) seeking ISR.

Submission of an OIC is not a listed event. To be an exception, the OIC must have been accepted so that the debt is no longer owed or the taxpayer must be making payments under the OIC. Given the length of time the IRS takes to process offers, this is troubling.

What happens if a revenue officer decides to levy social security at 15% and takes no further action? Will the ongoing levy, which operates like an IA, be sufficient to qualify as an IA under the § 7345(b)(2) exceptions?

What happens if the debtor has insufficient income to warrant an IA? Should currently uncollectible status (CNC) be considered the equivalent of being in an IA? Must the taxpayer be in an IA that pays a de minimis amount to avoid certification, e.g., one dollar a month? A passport might be very important to someone on CNC status, e.g., if one lives near the border or has close family outside the United States.

Certification and the automatic stay. Is certification barred by the bankruptcy automatic stay? Governmental actions that are used to enforce their police and regulatory power are not subject to the automatic stay because of the exception to the stay found in 11 U.S.C. § 362(b)(4). Clearly, the passport rule is a coercive rule to enforce collection. Will it be viewed as a police and regulatory action similar to the criminal collection statutes in Nevada? In Nevada, criminal prosecutions to collect casino debts are not considered a violation of the discharge injunction or the automatic stay. Nash v. Clark Cty Dist. Attorney (In re Nash), 464 B.R. 874 (9th Cir. BAP 2012) held that the Clark County District Attorney had not violated the discharge injunction when enforcing the criminal statute even though the statute was clearly designed to collect unpaid casino debts for the benefit of the casino. Does the automatic stay analysis change if the tax debt is otherwise dischargeable and likely to become legally unenforceable?

Judicial review. Section 7345(e) grants judicial review of certification to the Tax Court and district courts but not to bankruptcy courts. Section 7345(d) provides that notice of certification shall be given to the taxpayer and the notice shall include information about the right to contest the certification.  Notice of reversal of certification must also be given to the taxpayer.

If the taxpayer and the government disagree whether the debt remains legally enforceable after bankruptcy, there may be a back-door entrance into bankruptcy court. Denial or revocation of a passport might subject the taxing authority to an action for a violation of the discharge injunction under 11 U.S.C. § 524. Damages, including attorney’s fees, are notoriously difficult to collect because of the exceptions in section 7433 of the Internal Revenue Code. Given the uncertainty of the new law, one can certainly envision the IRS arguing that its position was substantially justified.