U.S. passports could be denied to tax evaders

A government study done on behalf of Congress indicates that lawmakers could crack down on tax evaders by denying them passports. Currently, the U.S. government is not allowed to prevent the issuance of passports to people who are suspected of dodging taxes, but with a government shutdown recently averted as lawmakers argued over billions in spending cuts, such a measure may help reap revenue for the country.

Congress’ investigative arm, the Government Accountability Office, in its report issued today noted that an estimated 16 million individuals received passports in the 2008 fiscal year. More than 1 percent of them apparently owed roughly $5.8 billion in unpaid federal taxes.

“If Congress is interested in pursuing a policy of linking federal tax debt collection to passport issuance, it may consider taking steps to enable [the State Department] to screen and prevent individuals who owe federal taxes from receiving passports,” the GAO concluded. “This could include asking [the department] and IRS to jointly study policy and practical issues and develop options with appropriate criteria and privacy safeguards. State provided technical comments which we incorporated into the report as appropriate.”

The GAO also noted that while people who owe $2,500 or more in child support payments may be denied a passport, people who lied on their taxes or underreported their income to the Internal Revenue Service can get one.

In arriving at its recommendation, the GAO “judgmentally selected 25 passport recipients to investigate for abuse related to the federal tax system or criminal activity.” Of the cases, at least 10 passport recipients had been indicted or convicted of federal laws. 

“Some of these individuals accumulated substantial wealth and assets, including million-dollar houses and luxury vehicles, while failing to pay their federal taxes. At least 16 passport recipients traveled outside the country while owing federal taxes,” according to the GAO.

Citing examples, the GAO added that an unnamed “gambler” studied in the report had an allegedly unpaid tax debt of more than $46 million. “The individual generally claimed to owe no taxes on returns filed in the early 2000s. Received about a $2 million tax refund for one of these returns. Subsequent IRS tax examinations in the mid 2000s determined that the recipient actually owed tens of millions of dollars in taxes for those tax years. Gambled tens of millions of dollars at the same time the income taxes were not paid.”

The GAO also identified a “World Bank employee” who had failed to file past tax returns with the IRS who owed hundreds of thousands of dollars and a State Department contractor who owed $100,000 in personal income taxes and trust fund recovery penalties for failure to pay employment taxes.

Click here to read the report.