Tax Court upholds passport notice certification

The Tax Court sustained the IRS’s certification to the U.S. Department of State that a taxpayer had a seriously delinquent tax debt, finding that the IRS had met the criteria to certify the taxpayer had a seriously delinquent tax debt and that the exception for a debt being paid in a timely manner under an installment agreement or offer in compromise (OIC) did not apply.

Facts: Lloyd T. Spencer was issued several notices of federal tax liens and levies by the IRS, informing him of his Collection Due Process (CDP) rights with respect to trust fund recovery penalty (TFRP) liabilities. For each of these CDP notices except for a March 24, 2021, levy notice that covered his TFRP liability for the tax period ending March 31, 2016, Spencer did not request a CDP hearing.

On April 21, 2021, Spencer timely requested a CDP hearing for the March 24, 2016, CDP levy notice, while also requesting an OIC. In June 2023, the IRS’s Independent Office of Appeals issued a notice of determination sustaining the proposed levy, rejecting Spencer’s proposed OIC, and concluding the CDP hearing. In July 2023, Spencer timely filed a petition with the Tax Court disputing the IRS’s determination with respect to the March 24, 2021, CDP levy notice. A separate division of the Tax Court entered a stipulated decision sustaining the determinations in that notice of determination (Spencer, No. 11198-23L (Tax Ct. 3/14/24)).

The IRS in March 2025 issued a Notice CP508C, Notice of Certification of Your Seriously Delinquent Federal Tax Debt to the State Department (passport notice). Spencer’s TFRP liabilities under Sec. 6672 for all the tax periods for which a CDP notice was issued amounted to approximately $1,609,355. The passport notice also identified additional interest due totaling $11,770. On May 2, 2025, Spencer timely filed a petition with the Tax Court challenging the passport notice. On Nov. 25, 2025, the IRS filed a motion for summary judgment in the case, to which Spencer did not respond.

Issues: Sec. 7345(a) states that if the IRS certifies that a taxpayer has a seriously delinquent tax debt, that certification shall be communicated “to the Secretary of State for action with respect to denial, revocation, or limitation of [the taxpayer’s] passport.” The IRS must also notify the taxpayer “contemporaneously with the making of such certification” (Sec. 7345(d)). A seriously delinquent tax debt is a federal tax liability that exceeds $50,000, adjusted for inflation. This adjusted threshold amount in 2025, the year of the passport notice, was $64,000 (Rev. Proc. 2024-40). The debt must also be unpaid, legally enforceable, and for which a lien notice has been filed or a levy made (Secs. 7345(b)(1) and (f)).

The IRC allows a taxpayer to petition the Tax Court to determine “whether the certification was erroneous or whether [the IRS] has failed to reverse the certification” (Sec. 7345(e)(1)). However, Sec. 7345(e)(2) restricts the relief the court may grant. If the Tax Court determines that the certification was “erroneous,” the court’s only remedy is an order instructing the IRS to notify the secretary of State of that fact (Ruesch, 25 F.4th 67 (2d Cir. 2022), aff’g in part, vacating in part, and remanding 154 T.C. 289 (2020)).

The court determined that the IRS met the criteria to certify that Spencer had a seriously delinquent tax debt by providing his IRS account transcripts for the tax periods in question. The transcripts provided the same information as Form 4340, Certificate of Assessments, Payments, and Other Specified Matters, showing that on Nov. 25, 2025, Spencer’s assessed, unpaid, and legally enforceable federal tax liabilities exceeded the $64,000 certification threshold. Furthermore, the transcripts also showed notices of lien and levy issued pursuant to Secs. 6320 and 6330.

There is an exception to the definition of “seriously delinquent tax debt” if a taxpayer is paying the debt in a timely manner under an installment agreement or OIC (Sec. 7345(b)(2)(A)). Spencer at one point had installment agreements for the tax periods in question; however, his transcripts did not show any installment agreement in force as of Sept. 23, 2024, or Oct. 28, 2024. Also, the IRS never accepted an OIC, even though the transcripts revealed it did consider and deny one.

To the extent that Spencer was challenging the denial of his proposed OIC, the court determined that such a challenge would be impermissible. If a taxpayer has requested a CDP hearing or has one pending, the related tax liabilities are excluded from the definition of “seriously delinquent tax debts” until the CDP hearing is completed (Sec. 7345(b)(2)(B)(i); Gayou, T.C. Memo. 2023-61). However, Spencer requested a hearing only for the tax period ending March 31, 2016, which Appeals completed, and a notice of determination was issued sustaining the collection action and rejecting the proposed OIC. In Gayou, the court rejected a similar argument as “wholly inapplicable” to a passport notice case, holding that the completion of a CDP hearing “forecloses the potential application of the statutory exclusion.” No CDP hearings were requested for any of the other tax periods in question.

Holding: The Tax Court granted the IRS’s motion for summary judgment. The court held that Spencer had a seriously delinquent tax debt, that it was properly certified between the IRS and secretary of State and contemporaneously communicated to Spencer, and that he did not have an installment agreement or OIC in place at the time of the notice that would except the debt from being seriously delinquent under Sec. 7345.

• Spencer, No. 6078-25P (Tax Ct. 1/29/26) (order and decision)

— John McKinley, CPA, CGMA, J.D., LL.M., and Thomas Godwin, CPA, CGMA, Ph.D., are both professors of the practice in accounting and taxation in the SC Johnson College of Business at Cornell University. To comment on this column, email Paul Bonner, the JofA‘s tax editor, at Paul.Bonner@aicpa-cima.com.