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Passport Revocation Cases Part 1

Posted on Nov. 9, 2021

We are in the process of the three times a year exercise of updating the Saltzman and Book treatise “IRS Practice and Procedure.”  As we have mentioned previously, the blog started primarily because we must stay on top of procedural cases in order to update the treatise.  Sometimes the blogging of cases informs the treatise and sometimes the treatise informs the blog.  This post is one in which the treatise informs the blog, as there have been passport cases on which we have not blogged but some of which we are inserting in the treatise and some which were previously inserted.  The cases deserve discussion in order to keep you up to date on what’s happening in this area.  Because there are four cases, I will break the post into two parts.

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.

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