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If You Owe Uncle Sam, You Might Stay with Uncle Sam

April 9th, 2012 2 comments

On March 14, Senate Bill 1813 was passed by the U.S. Senate. The bill is described as “[a]n Act to reauthorize Federal-aid highway and highway safety construction programs, and for other purposes.”

One of the “other purposes” is far from insignificant. Reported by Fox Business, taxpayers who have “a seriously delinquent tax debt in an amount in excess of $50,000″ could be prohibited from obtaining a passport to leave the country.

Some exceptions are built in. Taxpayers who are on a repayment plan or are not subject to active collection action may fall outside the bill’s scope.

Despite the exceptions, the bill’s language is too poorly worded. It’s easy to come up with scenarios for which placing the virtual handcuffs on U.S. residents seems far too excessive.

For example, suppose I am a banker making $200,000 per year. Suddenly, I am laid off. I live off savings for some time, but for several months am unable to obtain a new job paying even half my previous salary. Eventually, I am compelled to take an early distribution from my 401(k), and have a large tax liability as a result. The IRS then files a lien. I finally land a new job to cover basic living expenses but I can’t afford to address the growing tax liability.

I may be denied a passport pursuant to S. 1813 if the liability exceeds $50,000.

Although the intent of the bill likely is to keep more pronounced tax delinquents from escaping U.S. jurisdiction, the possible net casts far wider.

Unfortunately, that may not be enough to prevent the bill from passing. When it comes to taxes, we’ve seen before the federal government shooting the jaywalkers[1] while at the same time also punishing the more serious offenders.

Although S. 1813 passed the Senate by a 74 – 22 margin, the bill is expected to face more opposition in the House. Stay tuned.


[1] Credit to fellow tax blogger Joe Kristan for coining this phrase.

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