An individual who renews his/her US passport should to take into account that his/her social security number and place of residence will be forwarded to the IRS.
As quoted from the passport renewal instructions, updated July 2014: “Section 6039E of the Internal Revenue Code (26 USC 6039E) requires you to provide your Social Security Number (SSN), if you have one, when you apply for a US passport or renewal of a US passport … If you are residing abroad, you must also provide the name of the foreign country in which you are residing. The US Department of State must provide your SSN and foreign residence information to the US Department of Treasury. If you fail to provide the information, you are subject to a $500 penalty enforced by the IRS … ”
In addition, Section §6039E(b)(4) grants the IRS the authority to require any additional information as it may prescribe. The present information that is required includes: applicant’s current full name, previous name (as relevant), date of birth, address of residence, mailing address (if different), and ID number.
These regulations, first proposed in 2012, were finalized in 2014, and apply to all passport applications submitted after July 18, 2014.
As mentioned, a $500 penalty may be imposed on a passport applicant who fails to provide the required information. Following is the process that is followed in case of penalty assessment. The IRS sends a written notice of the potential penalty assessment to the passport applicant. The applicant must respond within sixty days (or ninety days for those living outside the United States) of the notice date. In the response, the applicant must effectively demonstrate that failure to supply the requested information was not due to willful neglect, but rather due to a reasonable cause. The IRS will take into consideration all relevant factors, and conclude, on a case-by-case basis, whether or not to impose the penalty.
This set of regulations is yet another IRS tactic to assure tax compliance and expose tax evasion, part of the growing efforts of the IRS to uncover unreported worldwide income, as the information the IRS receives from the US Department of State is enough to check the tax compliance of any passport applicant.
These regulations come on top of the Foreign Account Tax Compliance Act (FATCA), enacted in the United States in 2010 as part of the Hiring Incentives to Restore Employment (HIRE) Act, which was an significant advance in U.S. efforts to contend with tax evasion by Americans holding financial assets outside of the United States.
Under FATCA, non-U.S. foreign financial institutions (banks, hedge funds, pension funds, insurance companies etc.) are required to report to the U.S. tax Authorities (the IRS) information regarding accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest (10% and up). In the event that the institution fails to do so, the IRS will impose a 30% withholding tax on most U.S.-sourced income payments to that particular foreign financial institution.
You may ask, why do the foreign institutions agree to this? The answer is that offshore tax evasion is a major problem for countries all over the world, not just the USA; all countries have a shared interest in sharing information and cooperating with each other to try to solve this problem. On October 29, 2014, the finance ministers of around fifty different countries met in Berlin and signed a Multi-Lateral Competent Authority Agreement. This agreement designates which institution in each country is responsible for transferring tax data to other member countries. Under the agreement, information on new accounts and pre-existing individual high-value accounts will be exchanged by the end of September 2017. All other account information will be exchanged by the end of September 2018.
As obvious from the recent movements of the IRS and tax authorities around the world, countries are finding innovative methods of procuring their citizens’ personal information in order to investigate their tax compliance statuses. What starts as an seemingly harmless request for a passport renewal can lead to a very long and unpleasant correspondence with the IRS concerning your tax issues.
