The IRS provides taxpayers certain tax breaks when you pay for education. However, there is a catch. The monies paid (i.e. tuition) have to be to an eligible education institution. What exactly is that? Read on my friend.
Tax Benefits Available
The following are the benefits commonly available to taxpayers:
Tuition and Fees Deduction: The tuition and fees deduction can reduce the amount of your income subject to tax by up to $4,000. You may be able to deduct qualified education expenses for higher education paid during the year for yourself, your spouse or your dependent.
American Opportunity Tax Credit: A credit for tuition, required enrollment fees and course material for the first four years of post-secondary education for up to $2,500 per eligible student per year. Your modified adjusted gross income (MAGI) must be under $90,000 ($180,000 for joint filers) and you must not have claimed the AOTC or the former Hope Credit for more than four tax years for the same eligible student. Forty percent of this credit may be refundable.
Lifetime Learning Credit: The Lifetime Learning Credit is 20% of the first $10,000 of qualified education expenses paid for all eligible students. The maximum credit is $2,000 per return regardless of the number of eligible students. There is no limit on the number of years the credit can be claimed for each student; thus the reason it is referred to as “lifetime.”
Eligible Education Institution Defined
An eligible educational institution is a school offering higher education beyond high school. It is any college, university, trade school, or other post secondary educational institution eligible to participate in a student aid program run by the U.S. Department of Education. This includes most accredited public, nonprofit and privately-owned–for-profit post secondary institutions.
With that said, if you are attending a school in another country, there is a possibility that it is NOT considered an eligible education institution. In general, if you aren’t sure if your school is an eligible educational institution:
Complete this form to set up your IRS payment plan!
When a person owes the IRS money that they can’t pay in full, they typically will qualify to deal with the debt via a payment plan. This payment plan is called an “installment agreement” in IRS terminology. Simply stated, an installment agreement is a contract with the IRS to pay the taxes you owe within an extended time frame. There are many types of installment agreements, but two of the most common are the guaranteed and streamlined variety.
Guaranteed & Streamlined Installment Agreements
We discuss the guaranteed installment agreement at length in this blog post. But what exactly is a streamlined installment agreement? For individual taxpayers who have filed all required returns and have an assessed balance of tax, penalties and interest of $50,000 or less, they can enter into an installment agreement with “relaxed” criteria. Basically, they don’t have to go through as many hoops or submit as much documentation. The following criteria apply to those who wish to apply for a streamlined installment agreement:
Collection Information Statement (financials) Not required.
Payment Method Direct debit payments or payroll deduction is preferred, but not required.
Notice of Federal Tax Lien
Determination not required for assessed balances up to $25,000.
Determination is not required for assessed balances of $25,001 – $50,000 with the use of direct debit or payroll deduction agreement. If taxpayer does not agree to direct debit or payroll deduction, then they still qualify for Streamlined IA over $25,000, but a Notice of Federal Tax Lien determination will be made.
The criteria discussed above also apply to business taxpayers, but only for income tax debts up to $25,000.
So what if you owe more than $50,000 as an individual or $25,000 as a business? Well, this is where the “expanded installment agreement” comes into play.
Expanded Installment Agreements
From late 2016 through late Fall of 2018, the IRS tested “expanded” criteria for the streamlined processing of taxpayer requests for installment agreements. During the test, taxpayers who owed more than $50,001 but less than $100,000 were allowed to use most of the criteria outlined under the streamlined installment agreement. Well, based on test results, the expanded criteria for streamlined processing of installment agreement requests were made permanent. If you are a practitioner, you can find the “new” criteria in IRM 18.104.22.168.4.11 (09-26-18 update).
So, for individual taxpayers who have filed all required returns and have an assessed balance of tax, penalties and interest between $50,001 and $100,000, you can use the following criteria to apply for an expanded installment agreement:
Payment Terms Up to 84 months – or – the number of months necessary to satisfy the liability in full by the Collection Statute Expiration date, whichever is less
Collection Information Statement (financials) Not required if the taxpayer agrees to make payment by direct debit or payroll deduction
Payment Method Direct debit payments or payroll deduction is not required; however, if one of these methods is not used, then a Collection Information Statement is required.
Notice of Federal Tax Lien
Determination is required.
The criteria discussed above also applies to all out of business sole-proprietorship debts between $50,001 and $100,000.
Do you owe the IRS and need to enter into a resolution option?
Check out this page of our website where you can receive our special report entitled 5 Questions To Ask Any Tax Resolution Firm Before Paying Them A Dime, a comprehensive 30-minute Tax Debt Settlement Analysis AND your personalized Tax Resolution Plan (a package valued at $175, but FREE to you for a limited time). You can also visit this page to read about how you can find out the date (i.e. CSED) the IRS will write off your tax debt!
Don’t want to pay your taxes ehh? We’ll get your attention!
So the short answer to the question is yes, the IRS can revoke your passport if you have a “seriously delinquent” tax debt. But what exactly does that mean? More importantly, what can you do if your passport is at risk of being revoked? Read on to learn more my friend!
On December 4, 2015, President Obama signed the Fixing America’s Surface Transportation (FAST) Act (Pub. L. No. 114-94) into law—the first federal law in over a decade to provide long-term funding certainty for surface transportation infrastructure planning and investment. But like all legislative bills/acts, other things that may appear unrelated often get inserted into them. This act was no different.
Internal Revenue Code Sec. 7345 was enacted as part of the FAST Act. A seriously delinquent tax debt is defined as an unpaid, legally enforceable, and assessed federal tax liability greater than $51,000 (adjusted annually for inflation) and for which:
The IRS has filed a notice of federal tax lien and the individual’s right to a hearing has been exhausted or lapsed, or
The IRS has issued a levy.
Generally speaking a federal tax debt is the sum of all current tax obligations, including penalties and interest. However, a “seriously delinquent tax debt” does not include any of the following tax debt even if it meets the criteria stated above:
Being paid timely with an IRS-approved installment agreement (IA),
Being paid timely with an offer in compromise (OIC) accepted by the IRS, or a settlement agreement entered with the Justice Department,
For which a collection due process hearing is timely requested regarding a levy to collect the debt,
For which collection has been suspended because a request for innocent spouse relief under IRC § 6015 has been made
Furthermore, a passport won’t be at risk under this program for any taxpayer:
Who is in bankruptcy
Who is identified by the IRS as a victim of tax-related identity theft
Whose account the IRS has determined is currently not collectible (CNC) due to hardship
Who is located within a federally declared disaster area
Who has a request pending with the IRS for an installment agreement (IA)
Who has a pending offer in compromise (OIC) with the IRS
Who has an IRS accepted adjustment that will satisfy the debt in full
What the IRS does when you have a seriously delinquent tax debt
The IRS is required to notify you in writing at the time the IRS certifies seriously delinquent tax debt to the State Department. This is done via IRS notice CP 508C. If you have been certified to the Department of State by the Secretary of the Treasury as having a seriously delinquent tax debt, you cannot be issued a U.S. passport and your current U.S. passport may be revoked.
How do you resolve the situation?
The IRS will reverse a certification when the tax debt no longer qualifies as a seriously delinquent tax debt. This happens when:
The tax debt is fully satisfied or becomes legally unenforceable.
The tax debt is no longer seriously delinquent meaning:
You and the IRS enter into an installment agreement allowing you to pay the debt over time.
The IRS accepts an offer in compromise to satisfy the debt.
The Justice Department enters into a settlement agreement to satisfy the debt.
Collection is suspended because you request innocent spouse relief under IRC § 6015.
You make a timely request for a collection due process hearing regarding a levy to collect the debt.
The certification is erroneous.
The IRS will make this reversal within 30 days and provide notification to the State Department as soon as practicable.
The IRS will not reverse certification where a taxpayer requests a collection due process hearing or innocent spouse relief on a debt that is not the basis of the certification. Also, the IRS will not reverse the certification because the taxpayer pays the debt below $50,000. So…if you have been notified that your tax debt has been certified, you should consider:
paying the tax owed in full,
entering into an installment agreement, or
making an offer in compromise.
But what if the IRS made an error?
The State Department is held harmless in these matters and cannot be sued for any erroneous notification or failed decertification under IRC § 7345. If you believe that the IRS certified your debt to the State Department in error, you can file suit in the U.S. Tax Court or a U.S. District Court to have the court determine whether the certification is erroneous or the IRS failed to reverse the certification when it was required to do so. If the court determines the certification is erroneous or should be reversed, it can order the IRS to notify the State Department that the certification was in error.
Can I contact the State Department to find out the status of my passport?
The State Department does not have any information about your seriously delinquent tax debt. For questions, or to resolve your seriously delinquent tax debt, they recommend that you contact the IRS via phone at 1-855-519-4965 (1-267-941-1004 international) of via mail at:
Department of the Treasury
Internal Revenue Service
PO Box 8208
Philadelphia, PA 19101-8208
How can we help?
As you can tell from above, the IRS will only really reverse the certification if the debt is no longer enforceable (i.e. collectable) or if you enter into a resolution option (i.e. payment plan, currently not collectible, etc).
With regards to enforceability, the IRS only has 10 years from the date of assessment to collect on unpaid taxes. If you are getting letters, your debt is more than likely still active. But do you know when it will expire? This is called the CSED date.
While you could go through the hassle of calculating your CSED (see this blog post), do you really want to? For a flat $75 fee, and us filing a few forms with the IRS (with your consent), we’ll look at however many years you want to analyze, and provide you with a comprehensive report that will include:
Total tax assessment, penalty, interest and accrual amounts for each year (so you know how much you really owe)
CSED calculations for each year requested (i.e. when your debt will expire)
Tolling events (if any) and the days your CSED has been extended
All IRS notices sent/received for each year
IRS account activity by year
And much, much more (we promise)
If your debt will not expire for some time, we are fully authorized to represent your before the IRS and can can help negotiate a resolution option (i.e. IA, OIC, CNC) that will satisfy the IRS conditions to have your certification revoked/lifted. You can learn more about our representation services by visiting the IRS Debt Representation page or reading the IRS Talk post within our blog.
When you are ready to get started, simply call us at (773) 239-8850 or click our email address at the bottom of this screen.