State Bar of California
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Revoking Passports of Beverly Hills Residents for Non-payment of Seriously Delinquent Tax Debt

Beverly Hills, California or as it’s known to some, simply 90210 is one of the key places that the rich and famous live out their lives. In the words of Jed Clampett that hillbilly sage “lets load up the truck and move to Beverly… Hills, that is, swimin’ pools, movie stars.” Or at least that’s how I remember it from my 60s childhood. Beverly Hills is one of the richest communities in the U.S. It’s the home of The Academy of Motion Picture Arts & Sciences which hands out the fabled Oscar awards every year. Beverly Hills is full of opulent estates, over-the-top shopping, and limousines.

Despite the affluence and glamor of the surroundings, the city has a relatively low property tax rate. A study by the real estate website Trulia in 2016 found that Beverly Hills has the ninth-lowest average effective tax rate in California at just 0.53 percent. This is in part because residents of the city tend to stay there for a long time, so they benefit over the years from the limits on annual property tax increases under Proposition 13. However, Beverly Hills still compares favorably to other cities in Los Angeles County in terms of the nominal property tax assessed for a new purchase. This is around 1.09 percent, while the County overall has an average of about 1.16 percent. On the other hand, the sales tax in Beverly Hills is relatively high compared to other cities in the region and elsewhere in California. After combining state, county, and city tax rates, it is set at 9.25 percent, compared to the Los Angeles County average of 8.75 percent. Income tax is set at 8 percent, but residents still have plenty of disposable income to travel to foreign countries. However, they won’t be doing so for long if they get behind on their tax debts.

Your unresolved tax debt could prevent you from taking your next trip overseas. The IRS has the right to certify to the State Department that an individual has seriously delinquent tax debt. Upon receiving this certification, the State Department will generally not issue you a new passport, and will revoke your current passport.

Tax debt is considered “seriously delinquent” if it is unpaid, legally enforceable and assessed, is greater than $50,000 (indexed for inflation annually), and a notice of federal tax lien has been filed, AND the rights to appeal a levy have expired, or a levy has been made. In other words, the IRS has been doing everything it can to collect your tax debt, and you still have a large outstanding balance owed to the Treasury.

There are exceptions where debt will not be included when determining if you have seriously delinquent tax debt. The following amounts will not be included:

  • tax debt being paid in a timely manner under an installment agreement
  • tax debt being paid in a timely manner under an Offer in Compromise or a settlement agreement entered into with the Justice Department
  • tax debt for which a collection due process hearing has been timely requested in connection with a levy action
  • tax debt for which collection actions have been suspended due to a request for innocent spouse relief

The IRS will send a notice to your last known address when it certifies debt as seriously delinquent to the State Department.

You can get a certification reversed by either paying the tax debt in full, notifying the IRS that the certification is erroneous, or by satisfying one of the criteria listed above for an exception to the “seriously delinquent” standard. Enter into an installment agreement or offer in compromise, request innocent spouse relief, or request a collection due process hearing to contest a levy.

Note that paying the debt down to below $50,000 does not require the IRS to reverse the certification to the State Department. Once debt is certified as seriously delinquent, you need to either pay the entire debt or come to an agreement with the IRS.

This certification program was set to begin in early 2017, and the IRS now says it will probably be sometime this summer. Time will tell how aggressive the IRS is in certifying seriously delinquent tax debt to the State Department, but this is another arrow in the quiver of the IRS when dealing with taxpayers.

If a federal tax lien, bank account levy, or wage garnishment was not enough to convince you to resolve your tax problems, perhaps having to cancel your next vacation will be. Talk to a tax attorney either in Beverly Hills or anywhere else to discuss how to handle your tax debt and get your passport back

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