The Internal Revenue Service just released a bombshell announcement that has sent ripple effects through the U.S. expat community. The Internal Revenue Service said that 362,000 Americans with “seriously delinquent” overdue tax bills will be denied passports or passport renewals if they do not pay their tax bill.

As a way of background information, the IRS has the power to bar passports. Congress bestowed this authority on the IRS back in 2015 and it has been enshrined in IRC Section 7345. IRC Section 7345 imbues the IRS with what some critics refer to as the “nuclear option” – the right to certify to the State Department that a taxpayer has a “seriously delinquent tax debt.”

A seriously delinquent tax debt is defined as an outstanding IRS tax liability in which (1) the taxpayer owes the government more than $ 51,000 in back taxes, penalties and interest and (2) a Notice of Federal Tax Lien has previously been filed and the period to dispute it has lapsed, or the IRS has issued a levy with respect to the tax debt. If you’re wondering why the State Department is involved, it’s because they are the governmental agency that oversees passport applications.

Once the State Department receives certification of a tax debt from the IRS, this begins a chain reaction deep inside the catacombs of the State Department. Standard operating procedures call for the State Department to discontinue issuing or renewing the taxpayer’s U.S. passport. But that’s just the tip of the iceberg. The State Department may also revoke the passport. In the case of taxpayers with overdue taxes who live overseas, the State Department is not as heavy-handed; they have carved out a narrow exception that allows such taxpayers a limited passport good for a direct return to the United States. Some consider this a major insult more than a “carrot.”

Thanks in part to FATCA, the IRS has been sending tens of thousands of violators’ names to the State Department. The IRS began ratcheting up this enforcement effort back in February 2018. For those unfamiliar with FATCA, this is a good time for a short digression into the law that has made this all possible. FATCA is a 2010 United States federal law requiring all non-U.S. (‘foreign’) financial institutions (FFIs) to search their records for customers with indicia of ‘U.S.-person’ status, such as a U.S. place of birth, and to report the assets and identities of such persons to the U.S. Department of the Treasury.

FATCA also requires such persons to self-report their non-U.S. financial assets annually to the Internal Revenue Service (IRS) on form 8938, which is in addition to the older and further redundant requirement to self-report them annually to the Financial Crimes Enforcement Network (FinCEN) on form 114 (also known as ‘FBAR’). Like U.S. income tax law, FATCA applies to U.S. residents and also to U.S. citizens and green card holders residing in other countries.

The State Department has issued a stern warning that violators who do not resolve their tax issues before applying for a passport will have their application delayed or denied. Meanwhile, taxpayers with seriously delinquent tax payments who have already applied for a new U.S. passport are not exempt: they will not be issued a new passport unless and until such time as they have resolved their tax issues with the IRS. Ouch!

How can taxpayers avoid the IRS tipping them off to the State Department? There are a few ways, some of which are obvious. Others which may not be so obvious.

First, pay your overdue taxes in full, or negotiate an installment agreement to pay the debt over time, or apply for an offer in compromise. If the first image that comes to mind is the iconic image of Uncle Sam pointing his finger at the viewer in order to recruit soldiers for the Army during World War I, then I suppose that the IRS’s stern warning has succeeded in giving taxpayers the Heebie-jeebies. If there is anything positive to come out of this option (and I’m not so sure there is because it assumes that the taxpayer can readily access the money), it’s that the IRS will offer payment plans to “financially distressed” taxpayers.

At least one person paid $1 million in overdue taxes to avoid having their passport denied, according to the Wall Street Journal. As of June 2018, at least 220 people have paid a total of $11.5 million in overdue debts, according to the Journal.

Second, there is a certain class of taxpayers that are exempted – meaning not at risk for losing their passports – even if they satisfy the conditions that trigger the nuclear option. This includes taxpayers who are in bankruptcy, or who are victims of tax-related identity fraud or whose accounts are currently not collectible due to financial hardship. Also, those taxpayers living in a federally-declared disaster area won’t have their passports revoked.

Finally, there is always the IRS streamlined procedures (and for a limited time the IRS’s Offshore Voluntary Disclosure Program) that offer a way to come into compliance with your U.S. tax obligations without risking a referral to Criminal Investigation and in a large number of cases, without losing the shirt off your back.

For those wishing and hoping that the number of certifications will subside, the news is grim. According to a report issued by the Taxpayer Assistance Service, not only is it unlikely to subside, it’s expected to grow to monumental proportions. In this respect, it’s not unlike that boulder from Greek mythology that Sisyphus, the king of Ephyra, was condemned to roll up a hill for eternity only to see it roll back down over and over again when it gets to the top.

According to a report issued by the Taxpayer Assistance Service (TAS), the IRS plans on stepping up its certification to a staggering rate of five to ten percent each week until all taxpayers satisfying the criteria have been certified. If you’re curious to know how many taxpayers meet the certification criteria and do not qualify for the exclusion, the report estimates that figure to be in the ballpark of 436,000.

TAS has not sat back quietly in the wake of this. They have sharply criticized the IRS on the grounds that the notice it sends taxpayers regarding the passport certification program lacks sufficient information and does not fully apprise taxpayers of their rights. Failing to apprise taxpayers of their rights is inexcusable, especially in light of the fact that freedom of movement has been judicially recognized as a fundamental Constitutional right as far back as 1823 in the circuit court ruling of Corfield v. Coryell, 6 Fed. Cas. 546. In Paul v. Virginia, 75 U.S. 168 (1869), the Supreme Court of the United States defined freedom of movement as “right of free ingress into other States, and egress from them^.” While the Supreme Court did not invest the federal government with the authority to protect freedom of movement – this authority was granted to the states under the “privileges and immunities” clause – the fact remains that revoking a person’s passport is a serious deprivation of a fundamental liberty interest that should not be taken lightly.

To add insult to injury, the government appears to be doing so with impunity.

TAS has attempted to assuage the concerns of taxpayers by continuing to work with the IRS to ensure its plans and procedures are narrowly tailored to achieving the purpose of the statute without imposing an undue hardship on taxpayers. Only time will tell whether this is double talk or straight talk. Get ready for what is gearing up to be a hot summer.