How New York and the IRS Can Stop Delinquent Taxpayers from Traveling

Most people know the government can go after taxpayers who owe back taxes. However, few individuals realize that both New York State and the IRS now have the ability to restrict delinquent taxpayers’ ability to travel, whether by suspending their driver’s licenses or by revoking their passports.

New York Driver’s License Suspension

New York State can suspend a taxpayer’s New York State Driver’s License if (1) a taxpayer owes $10,000 or more in taxes, penalties, or interest, and (2) no collection resolution is in place (such as an installment payment agreement, income execution or offer in compromise). From New York State’s point of view, the program has been a success. As a result of the program, taxpayers have paid over $420 million in delinquent taxes to date. In fact, the program has been so successful that Governor Cuomo proposed lowering the threshold to just $5,000, impacting approximately 11,000 more taxpayers. Governor Cuomo also wanted to expand the program to include both professional and business licenses. Fortunately for the taxpayers, both of the Governor’s proposals were rejected by the legislature.

After New York State identifies delinquent taxpayers, it sends them a “Notice of Proposed Driver License Suspension Referral” informing them that they have 60 days to enter into a collection resolution with the State.

If there is no resolution within 60 days, New York State will notify the DMV of the taxpayer’s delinquent status. The DMV will then send an “Order of Suspension or Revocation” to the taxpayer informing him that, unless the tax liabilities are addressed within 15 days, his or her license will be suspended. Between these two notices the taxpayer has 75 days to resolve the tax issues. However, thanks to bureaucratic delays, the time period is typically 85 to 90 days.

For eligible taxpayers, there are exceptions to the program. For example, commercial drivers are not subject to driver’s license suspension. In addition, those who already have a wage garnishment in place to pay child support, or have an agreement with the collection arm of child support, are also exempt. Other exceptions include taxpayers who are seeking innocent spouse relief or those for whom enforcement of past liabilities has been stayed by a petition in Bankruptcy. Notably, the law contains no exception for provable hardship. New York State will allow limited suspensions in some cases, such as to allow certain trips to and from work. Many taxpayers have challenged the law, but to no avail.

US Passport Revocation

In December 2015, Congress passed a law allowing revocation of a person’s passport if they owe the IRS $51,000 or more and where the IRS has filed either a Notice of Federal Tax Lien or a Levy. Significantly, this $51,000 includes both penalties and interest, not just taxes, and will be adjusted upward for inflation in $1,000 increments. Note that the statute provides that the IRS must contemporaneously give notice to the individual involved. Because the law is so new, there is currently no official guidance available other than the language in the statute.

The law provides that the taxpayer can also be denied issuance or renewal of a passport.  In addition, if the individual is outside the United States, the Secretary of State may also limit a previously issued passport only for return travel to the United States or issue a new limited passport that only permits return travel to the United States. Finally, there is an exception that will allow the State Department to issue a passport for emergency reasons.

Some taxpayers may also be restricted in domestic air travel.  This is because of the REAL ID Act of 2005 which “set standards for the issuance of sources of identification, such as driver’s licenses.” According to the Department of Homeland Security website, effective January 22, 2018, if you have a driver’s license or identification card issued by a state that does not meet the requirements of the REAL ID Act, you will be required to present an alternative form of identification acceptable to TSA (such as a US passport) in order to board a commercial domestic flight. Thereafter, starting October 1, 2020, every air traveler will need a REAL ID-compliant license, or another acceptable form of identification, for domestic air travel. Theoretically, in the event that New York State does not comply with the standards of the Real ID Act by 2018, taxpayers who were denied passports due to tax debts may find themselves unable to board any flights in the United States regardless of destination.

Conclusion

Taxpayers should not neglect any tax liabilities or allow tax debts to accumulate. If you owe back taxes, speak to a qualified attorney about what remedies are available to help resolve your tax dispute.

Have a tax problem? Contact us for a consultation.