Court Upholds Constitutionality of Passport Revocations for Delinquent Tax Debts

(Parker Tax Publishing April 2021)

A district court held that the denial of passport services to an individual who was certified by the IRS as having seriously delinquent tax debt under Code Sec. 7345 did not violate the individual's constitutional right of international travel. The court found that the right to international travel is not a fundamental right and Code Sec. 7345 is constitutional because the government has a legitimate interest in collecting unpaid tax debts and the denial of passport services is rationally related to that interest. Jones v. Mnuchin, 2021 PTC 61 (S.D. Ga. 2021).

Background

Craig Jones owed federal income taxes for several years totaling $404,928. As a result of his liability, the IRS certified Jones as having seriously delinquent tax debt under Code Sec. 7345. Thereafter, the Department of State issued a letter to Jones explaining that he was ineligible to receive passport services, including the renewal of his passport, due to the certification. Jones filed suit in a district court to challenge the validity of the certification, arguing that Code Sec. 7345 is unconstitutional on its face because it infringes on the right to international travel. The government filed for summary judgment.

Under Code Sec. 7345, if the IRS certifies that an individual has a seriously delinquent tax debt, the Secretary of the Treasury is required to transmit the certification to the Secretary of State for the denial, revocation, or limitation of the individual's passport. Seriously delinquent tax debt is debt that is greater than $50,000. Before certifying a tax debt as seriously delinquent, the IRS must assess the liability, meaning that the amount of the liability must be determined through an administrative process that provides the taxpayer with notice and an opportunity to challenge the IRS's determination in the Tax Court. In addition, before certification under Code Sec. 7345, the IRS must attempt to collect the debt by filing a notice of lien under Code Sec. 6323 and allowing the taxpayer to exhaust his or her administrative rights in a collections due process hearing or by levying the taxpayer's property under Code Sec. 6331. Additionally, debt that is being paid in a timely manner under an agreement to which the taxpayer is a party, or debt for which collection is suspended because a due process hearing is requested or pending, or because innocent spouse relief is requested under Code Sec. 6015, cannot be certified as seriously delinquent. Code Sec. 7345(c) and (e) provide rules under which certifications may be challenged and reversed if erroneous.

Jones argued that the right to international travel is a fundamental liberty and that, since Code Sec. 7345 infringes on that right, it was subject to a strict scrutiny standard of review. Under strict scrutiny, a statute can infringe on a fundamental right only if it (1) furthers a compelling government interest and (2) is narrowly tailored to the furtherance of that interest. If a right is not fundamental, then courts apply a "rational basis" standard, under which a statute is constitutional if the government has a legitimate government interest and the statute is rationally related to the interest.

Jones did not dispute that the government has a legitimate interest in collecting seriously delinquent taxes. However, he argued that Code Sec. 7345 is not rationally related to the government's interest. Jones further contended that Code Sec. 7345 fails to survive even minimum scrutiny in light of analogous Code Sec. 7402 "ne exeat republica" cases which have held that there is no rational basis to prevent a taxpayer from leaving the country unless there is a violation of a court order or the hiding of assets overseas. Jones contended that under U.S. v. Shaheen, 445 F.2d 6 (7th Cir. 1971), the government cannot obtain a writ of ne exeat republica under Code Sec. 7402 as a matter of course but instead must establish that the tax debtor is attempting to leave the country with his or her assets, or has done so and refuses to repatriate those assets. Jones contended that the same standard should apply under Code Sec. 7345.

Analysis

The district court granted summary judgment for the government and upheld the constitutionality of Code Sec. 7345. The court analyzed Code Sec. 7345 in the context of the substantive and procedural due process protections under the Fifth Amendment.

The court found that the right to international travel is not a fundamental right, and therefore, the strict scrutiny test did not apply. The court noted that in Haig v. Agee, 453 U.S. 280 (1981), the Supreme Court distinguished the right to interstate travel, which is a fundamental right, from the freedom to travel internationally. In Haig, the Court held that international travel is no more than an aspect of the "liberty" protected by the due process clause of the Fifth Amendment and is therefore not to be judged by the same standard that applies to laws that penalize the right to interstate travel. Therefore, the district court held that Code Sec. 7345 was subject to the lower rational basis standard. The court found that Code Sec. 7345 easily passed the rational basis standard because the collection of seriously delinquent tax debt is undoubtedly a legitimate government interest. Further, the court found that the denial of a passport to an individual with seriously delinquent tax debt is rationally related to the government's interest because a person with tax debts could attempt to flee the country.

The court also found that the Fifth Amendment's procedural due process requirements are satisfied by the procedural protections provided in Code Sec. 7345. The court noted that, before certifying that an individual has a seriously delinquent tax debt, a notice of lien must be filed and the administrative rights under Code Sec. 6320 must be exhausted or have lapsed, or a levy must be made under Code Sec. 6331. The court also noted that before filing a notice of lien or proceeding with a levy, the IRS must provide notice to the taxpayer of the provisions of Code Sec. 7345. The court therefore found that an individual receives notice of the consequences of Code Sec. 7345 prior to the IRS certifying their tax liability as seriously delinquent, and these notice and hearing requirements comport with due process.

The court rejected Jones's argument that Code Sec. 7345 was analogous to the ne exeat republica power under Code Sec. 7402. The court found that the predicates required for a writ of ne exeat republica did not apply because Code Sec. 7345, which is used to enforce tax laws, is separate and distinct from Code Sec. 7402.

For a discussion of IRS collection procedures, see Parker Tax ¶260,501.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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