Since 2013 the New York State Department of Taxation and Finance (NYSDTF) has been working collectively with the Department of Motor Vehicles (DMV) to collect past-due taxes. At the federal level in 2015 section 7345: Revocation or Denial of Passport in case of Certain Tax Delinquencies was added to the Internal Revenue Code permitting the IRS to send information to the Department of State to deny, revoke, or place limits on passports belonging to delinquent taxpayers.
State Issued Driver’s License
Numerous states are using the privilege to drive (i.e. hold a state issued driver’s license) as a tool to collect past due taxes from delinquent taxpayers. In this post, I will specifically discuss the Driver’s License Suspension Program being utilized by NYSDTF.
The state of New York has taken the position that having a driver license is a privilege, and that privilege may be lost for numerous reasons including owing back taxes. “Driver licenses are a privilege, not a right, and this program has prompted unprecedented action from tax delinquents who were otherwise ignoring their debt” – Thomas H. Mattox (Former Tax Commissioner of New York )
If you owe $10,000 or more in past-due tax debt, NYSDTF will send your information to the DMV for license suspension. Procedurally, NYSDTF will mail certain delinquent taxpayers owing $10,000 or more in past due state taxes, a Notice of Proposed Driver’s License Suspension. This notice informs the delinquent taxpayer that he/she has 60 days to resolve their tax debt. The notice will also list the statutory exemptions to license suspension. If the taxpayer does not respond timely to notice, pay outstanding tax in full, or setup an installment payment agreement, the taxpayer’s information may be referred to the DMV for license suspension.
Certain taxpayer are not subject to license suspension for unpaid tax debts, including:
- Taxpayers with wages being garnished for past-due child support, spousal support, or combination of child and spousal support in arrears are exempted from license suspension for nonpayment of state tax.
- Taxpayers in possession of a commercial driver’s licenses as defined by §501-a of the Vehicle and Traffic Law are also exempt from this program.
- Taxpayers receiving public assistance.
- Taxpayers who receive supplemental security income (SSI).
- Taxpayers whose payment of past-due tax liabilities would create a hardship in meeting necessary living expenses.
Once taxpayer’s information is referred to the DMV for license suspension, the DMV will mail taxpayer an Order of Suspension or Revocation (15-day notice) stating the date that the taxpayer’s driver’s license will be suspended. The notice will instruct the taxpayer to contact the Tax Department (not the DMV) to resolve issue.
At the Federal level the IRS may certify that a taxpayer owes seriously delinquent tax debt to the Secretary of State for action including passport denial, revocation, or limitation.
The term “seriously delinquent tax debt” is an unpaid, legally enforceable federal tax liability owed by an individual, in excess of $54,000 (statutory amount adjusted for inflation), which has been assessed, and a notice of federal tax lien has been filed, with all administrative rights being exhausted or a tax levy issued.
Statutory Exemptions: A tax debt being paid via an IRS agreement (i.e. an Installment Agreement, or an Offer in Compromise) will not be considered seriously delinquent tax debt.
Administrative Exclusions: Additionally, the IRS has the discretion to exclude categories of tax debt from certification even if the debt meets the criteria of seriously delinquent tax debt under §7345. The following tax debts are administratively excluded from certification:
- Debt that is determined to be currently not collectible (CNC) due to hardship
- Debt that resulted from identity theft
- Taxpayers in a Disaster Zone
- Debt of a taxpayer in bankruptcy
- Debt of a deceased taxpayer
- Debt that is included in a pending Offer in Compromise
- Debt that is included in a pending Installment Agreement
The IRS will mail the delinquent taxpayer Notice CP508C when certified. Once State Department receives certification from the IRS the taxpayer will no longer be able to renew passport or be eligible to receive a new passport.
A taxpayer that needs a passport but has been certified should contact the IRS to resolve their tax debt. Once the taxpayer’s previously certified debt is no longer seriously delinquent the IRS will reverse the certification, notify the State Department, and mail Notice CP508R to the taxpayer.
The ability to suspend a license or revoke a passport are effective tools used by tax agencies to get delinquent taxpayers to come forward and resolve their outstanding tax liabilities. If you need assistance with an IRS or NYS tax matter, please contact us at (212) 520-2906.