Handling Clients with Seriously Delinquent Tax Debt
The IRS has broad collection powers when taxpayers fall behind, but one of the most severe enforcement tools available is the designation of a taxpayer’s liability as “seriously delinquent tax debt” (SDTD) under 26 U.S.C. § 7345. Once certified, this designation is transmitted to the U.S. Department of State, which may deny passport applications, revoke existing passports, or limit the taxpayer’s ability to travel internationally.
For taxpayers, and their advisors, understanding what constitutes seriously delinquent tax debt, how certification works, and what remedies are available is essential. Mishandling these cases can result in years of restricted mobility and aggressive collection activity, while timely intervention can preserve both the taxpayer’s rights and their ability to resolve the underlying liability.
Definition of Seriously Delinquent Tax Debt
Under § 7345(b), a taxpayer is considered to have seriously delinquent tax debt if:
The amount of unpaid, legally enforceable federal tax liability exceeds $55,000 (indexed for inflation; $62,000 in 2024), including penalties and interest, and
A Notice of Federal Tax Lien has been filed, or a levy has been issued under §§ 6321–6323 and § 6331.
Importantly, not all taxpayers with liabilities exceeding this threshold will be certified. Several statutory exclusions apply.
Statutory Exceptions
The IRS will not certify a liability as seriously delinquent if:
The taxpayer is in an installment agreement under § 6159.
The taxpayer has entered into an Offer in Compromise under § 7122 that is pending or accepted.
The taxpayer has requested a Collection Due Process (CDP) hearing under § 6330, which is still pending.
The debt is classified as “not collectible due to hardship” or is currently being litigated.
These exceptions underscore the importance of timely intervention by advisors. Establishing a formal resolution strategy can prevent certification entirely.
IRS Certification and State Department Action
Once a taxpayer is certified as having seriously delinquent tax debt:
The IRS sends Notice CP508C to the taxpayer.
The certification is transmitted to the State Department.
The State Department may deny a new passport application or revoke an existing passport (22 U.S.C. § 2714a(e)).
The taxpayer’s only judicial remedy to challenge the certification is to bring a civil action under § 7345(e) in U.S. District Court or Tax Court. The court’s jurisdiction is limited to determining whether the IRS’s certification was erroneous or whether the certification should have been reversed.
Decertification
The IRS is required to notify the State Department when a certification is erroneous or when the taxpayer resolves the debt through:
Full payment of the liability.
Acceptance of an installment agreement (§ 6159).
Acceptance of an Offer in Compromise (§ 7122).
Innocent spouse relief granted under § 6015.
The IRS issues Notice CP508R to confirm reversal of certification. Decertification is generally processed within 30 days, but practitioners should advise clients to allow time for the State Department to update its records.
Best Practices for Practitioners
Years of experience handling SDTD cases point to several key strategies:
Act Quickly When CP508C Is Issued
Certification means the taxpayer is already at risk of passport denial or revocation. Immediate action is required to preserve travel rights.
Evaluate Resolution Options
Installment agreements and Offers in Compromise are the fastest pathways to decertification.
For taxpayers facing imminent travel needs, consider requesting expedited processing if payment arrangements are made.
Parallel Strategies
Filing a CDP request under § 6330 (if within the deadline) may prevent certification.
If certification has already occurred, pursuing decertification through installment agreements or hardship status is often more practical than litigation.
Maintain Documentation
Document all taxpayer efforts to resolve the liability. This may support penalty abatement requests under § 6651 or relief arguments if litigation becomes necessary.
Common Pitfalls
Ignoring CP508C notices and assuming they can be appealed like other collection letters.
Confusing “seriously delinquent” certification with standard lien or levy procedures.
Relying on informal promises from IRS collections personnel rather than formalizing resolution in writing.
Waiting until international travel is imminent, leaving too little time for the State Department to process decertification.
Seriously Delinquent Tax Debt Checklist
Before Certification
Confirm balance due exceeds statutory threshold (§ 7345(b)).
Review for exclusions (installment agreement, OIC, CDP pending).
Take action to establish a resolution strategy (IA, OIC, CNC).
After Certification (CP508C Received)
Verify certification accuracy.
Advise client of passport risks.
Submit resolution request (IA, OIC, payment in full, CNC).
Request expedited decertification if urgent travel is required.
If Certification is Erroneous
File administrative appeal with IRS.
If unresolved, consider litigation under § 7345(e).
Bottom Line
Seriously delinquent tax debt certification under § 7345 represents one of the most aggressive collection tools in the IRS arsenal. For taxpayers, the consequences extend beyond finances to fundamental freedoms, such as the ability to travel abroad. Practitioners who respond promptly, by securing installment agreements, offers in compromise, or other statutory exclusions, can prevent certification or achieve decertification before significant harm occurs.
A well-documented strategy, grounded in the Code and IRS procedure, is the best safeguard against years of restricted mobility and ongoing enforcement.