Federal law permits the Secretary of  State to deny or revoke the issuance of passports only in certain  circumstances, including, but not limited to, when the individual   is subject to a criminal court order, condition of probation, or condition of  parole, any of which forbids departure from the United States and the  violation of which could result in the issuance of a federal warrant of  arrest, including a warrant issued under the Federal Fugitive Felon Act;  is over $2,500 delinquent in child support;  is delinquent in certain Department of State debts;    has an outstanding felony warrant;    has an outstanding foreign felony warrant;  is subject to an extradition request that has been presented to a foreign  country;    has been declared legally incompetent;    used a passport or crossed an international border to commit an act based  on which the individual was subsequently convicted of certain drug  trafficking crimes, but only during the period the individual is imprisoned  or on parole or supervised release; or    used a passport or crossed an international border to commit an act based  on which the individual was subsequently convicted under the federal “sex  tourism” statute, but only during the period the individual is imprisoned or  on parole or supervised release. Magnitude of Unpaid Taxes Owed by Individuals Issued a Passport

The State Department issued passports to over 224,000 individuals who  owed over $5.8 billion in known unpaid federal taxes as of September 30,  2008. This represented over 1 percent of the approximately 16 million  individuals issued a passport during fiscal year 2008. Currently, federal law  does not authorize State to deny the issuance of passports to individuals  who owe federal taxes. Because IRS’s database does not include amounts  owed by taxpayers who have not filed tax returns and for which IRS has  not assessed tax amounts due, the estimated amount of unpaid federal  taxes is likely understated. The  dollar amount of these debts was about $1.3 billion. Unpaid Federal Taxes of Individuals Issued a Passport Are Substantially Understated

Although the over $5.8 billion in unpaid federal taxes owed by individuals  issued a passport as of September 30, 2008, is a significant amount, it likely  substantially understates the full extent of unpaid taxes owed by these or  other individuals. State issues  millions of passports each year. Of these cases, we identified several passport recipients for  which IRS had assessed trust fund recovery penalties due to these  individuals’ willful failure to remit payroll taxes withheld from their  employees’ paychecks to the federal government. Rather than fulfill their role as “trustees” of  this money and forward it to IRS as required by law, these passport  recipients diverted the money for other purposes. Our investigations also found that two individuals committed  identity theft by using the identities of deceased individuals to fraudulently  obtain passports. Our investigations found that these individuals used  their passports to travel to Mexico, France, and Africa. We referred these two cases to IRS  for further investigation. Our  investigations also revealed that at least four passport recipients currently  reside in another country while owing federal taxes. At least 10 passport recipients had been indicted or convicted of violating  federal laws. In addition, IRS officials  explained the impact 26 U.S.C. IRS officials stated that       26 U.S.C. Matter for Congressional Consideration

If Congress is interested in pursuing the policy strategy of linking federal  tax debt collection to passport issuance as an approach to help reduce the  federal deficit and to increase taxpayer compliance with tax laws, it may  wish to consider taking steps to enable and require the Secretary of State  to screen and prevent individuals who owe federal taxes from receiving  passports, to include establishing criteria for specific categories of  passport holders and waivers as appropriate. To do this, Congress may  wish to ask the Secretary of State and Commissioner of Internal Revenue  to jointly study policy and practical issues and develop options for further  consideration, including developing appropriate criteria and safeguards. State  provided technical comments, which we have incorporated as appropriate. We  matched the passport data to IRS unpaid assessment data using the Social  Security number (SSN) field. To identify examples of abuse or criminal activity, we selected 25 passport  recipients with federal tax debts for detailed audit and investigation. The  25 cases were chosen using a nonrepresentative selection approach based  on our judgment, data mining, and a number of other criteria, such as total  amount of taxes owed by passport recipients, number of tax years that the  passport recipient did not pay all taxes, types of taxes, and location of the  tax recipient. While these case studies were among the more egregious  and cannot be generalized beyond the cases presented, they serve to  illustrate the sizeable amounts of taxes owed by some individuals and the  other characteristics of the cases that could extend beyond the tax system,  including the use of passports by individuals involved in crimes such as  money laundering.
Why GAO Did This Study

According to the Internal Revenue Service (IRS), as of the end of fiscal year 2010, the balance of reported unpaid federal taxes was about $330 billion. Given the many challenges that IRS faces, the enforcement of the tax laws and the tax code is on GAO's list of high-risk areas. GAO was asked to (1) determine, to the extent possible, the magnitude of known unpaid federal taxes for individuals who were issued passports in fiscal year 2008; and (2) identify examples of passport recipients who have known unpaid federal taxes. GAO reviewed data from the Department of State (State) and IRS. To identify examples for detailed audit and investigation, GAO chose a nonrepresentative selection of 25 passport recipients based on a number of factors, including amount of taxes owed. These case studies were chosen, among other things, by the more egregious amount of federal taxes owed and cannot be generalized beyond the cases presented.

What GAO Found

State issued passports to about 16 million individuals during fiscal year 2008; of these, over 224,000 individuals (over 1 percent) owed over $5.8 billion in unpaid federal taxes as of September 30, 2008. State is not authorized to restrict the issuance of passports to individuals because they owe federal taxes. In addition, federal law does not permit IRS to disclose taxpayer information, including unpaid federal taxes, to State officials unless the taxpayer consents. In contrast, federal law permits certain restrictions on the issuance of passports to individuals, such as individuals owing child support debts over $2,500. For 2008, the estimated amount of unpaid federal taxes is likely understated because it excludes individuals who have not filed tax returns or underreported income. In addition, according to State officials, State cannot compel a passport applicant to provide a Social Security Number (SSN). As a result, State's records sometimes did not contain a valid SSN, which is necessary to match passport data to IRS data. Also, the number of passport holders and dollars owed only includes 1 year of passports that were issued, substantially understating the total tax debt for all passport holders. GAO judgmentally selected 25 passport recipients to investigate for abuse related to the federal tax system or criminal activity. Of these cases, at least 10 passport recipients had been indicted or convicted of federal laws. In addition, IRS assessed trust fund recovery penalties on several passport recipients when the individual did not remit payroll taxes to the federal government. Rather than fulfill their role as trustees of this money and forward it to IRS, they diverted the money for other purposes. Willful failure to remit payroll taxes is a felony under U.S. law. 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. At least 4 passport recipients resided in another country at the time of GAO's investigation. Two individuals used the identities of deceased individuals to fraudulently obtain passports and then used these passports to travel to Mexico, France, and Africa. In one case, the unpaid tax debt belonged to a deceased individual, and in the other case, the debt was incurred by the imposter. We referred these 2 cases to IRS for further investigation. If Congress is interested in pursuing a policy of linking federal tax debt collection to passport issuance, it may consider taking steps to enable State to screen and prevent individuals who owe federal taxes from receiving passports. This could include asking State 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.