Justice John Marshall is typically credited as creating the idea that the judicial branch has the power to declare Acts of Congress unconstitutional. See Marbury v. Madison, 5 U.S. 137 (1803). But courts exercise that power cautiously, refusing to confront allegations of unconstitutionality if they can plausibly dodge the issue. See generally, Gunnar P. Seaquist, The Constitutional Avoidance Canon of Statutory Construction, The Advocate 25 (Summer 2015).
Robert Rowen v. Commissioner, 156 T.C. No. 8 (Mar. 30, 2021) (Judge Toro), shows us the caution of the Tax Court. There, the taxpayer invited the Court to declare the passport revocation process, created by Congress in the FAST Act of 2015, unconstitutional. The Court unanimously dodged the invitation, based on the taxpayer’s failure to distinguish between an Act of Congress and the codification of an Act. The Tax Court viewed the only part of the FAST Act at issue to be the part codified in the Internal Revenue Code in §7345. It held that since §7345 does not, on its own, trigger any deprivation of property or liberty, this was not the proper case for the Court to rule on the constitutionality of the entire passport revocation process. I invite readers to form their own conclusions about the plausibility of the Court’s dodge. Details below the fold.
Law: The Passport Revocation Statute
In §32101 of the Fixing America’s Surface Transportation ("FAST") Act, 129 Stat. 1312, Congress created a procedure to enforce a taxpayer’s obligation to pay an assessed tax. The idea behind the passport revocation process is simple. If the government threatens to take away a taxpayer’s passport, that taxpayer is more likely to pay up.
Section 32101, subsection (a) created a new section of the Tax Code, §7345, which authorizes the IRS to certify lists of seriously delinquent taxpayers and send those lists to the State Department. This part of the Act is codified in title 26.
Section 32101, subsections (e)-(g) require the Secretary of State to refuse issuance of a new passport to any taxpayer so certified (with some exceptions) and permits the Secretary discretion to revoke an existing passport. This part of the Act is codified in title 22, as §2714a(e)-(g).
The part codified in title 26 also permits taxpayers upset at the IRS ratting them out to the State Department to seek judicial review either in the Tax Court or in a federal district court and those courts have jurisdiction to “to determine whether the certification was erroneous....” §7345(e).
Law: The Passport Revocation Process
While the idea is simple, the process is complex. Three aspects of the process create complexity: (1) the need to coordinate between the Department of Treasury and the Department of State; (2) the need to calculate a seriously tax debt; and (3) the need to track subsequent fluctuations in overall tax debt. Let’s look at each briefly in turn.
First, the process of coordinating between two large agencies is complex. A TIGTA report in September 2019 describes how the process they worked out starts:
“If the State Department receives an application for a passport from a taxpayer who has been certified by the IRS, it sends the taxpayer a notice and holds the application for 90 calendar days. This is to allow the taxpayer time to make full payment of the tax debt, enter into a satisfactory payment alternative with the IRS, or resolve any erroneous certification issues to avoid their passport application being denied. For taxpayers who resolve their tax debt, the IRS reverses the certification (decertifies) and notifies the State Department. If the applicant has not been decertified by 90 calendar days, the State Department will notify the taxpayer that the passport application or renewal is denied due to the seriously delinquent tax debt not being resolved.”
Second, the definition of “a seriously delinquent tax debt” is complex. Section 7345(b)(1) defines the term. It says that a tax debt crosses the threshold into seriously delinquent territory when the assessed tax liability—including penalties and interest—goes over $50,000 (indexed for inflation).
The statute then throws a ton of qualifiers around just which assessed but unpaid tax liabilities the IRS is supposed to count. To start with, the very definition in subsection (b)(1) contains exclusions. What counts is only assessed and unpaid liabilities for which “(i) a notice of lien has been filed pursuant to section 6323 and the administrative rights under section 6320 with respect to such filing have been exhausted or have lapsed, or (ii) a levy is made pursuant to section 6331.” §7345(b)(1)(C).
Next, subsection (b)(2) creates three more exclusions. Tax liabilities that are covered by a current installment agreement or OIC don’t count. §7345(b)(2)(A). Tax liabilities for which the taxpayer has successfully triggered a CDP hearing don’t count. §7345(b)(2)(B). Tax liabilities from which the taxpayer has requested spousal relief under §6015 don’t count. §7345(b)(2)(C).
Finally, Congress left gaps. It could not possibility think through what other situations should disqualify an assessed but unpaid tax debt from being counted as “seriously delinquent.” For example, sending over a certification for a tax debt that is the subject of a bankruptcy action would likely violate the automatic stay. And if the idea behind excluding liabilities that are part of a NFTL CDP hearing is that a taxpayer is trying to work out payment, why then perhaps liabilities for which taxpayers are trying to work things out otherwise ought not to count.
The IRS guidance has attempted to fill in those gaps. You can find it in IRM 188.8.131.52. Section 184.108.40.206.4 lists eight different types of tax liabilities that usually won’t count (but sometimes will!), including CNC accounts, pending OICs and IAs, liabilities subject to the bankruptcy automatic stay, etc.
The IRS guidance cuts against the statutory language in one important respect. The statute says “the term ‘seriously delinquent tax debt’ means an unpaid, legally enforceable Federal tax liability of an individual.” §7345(b)(1)(Emphasis added). You might think the use of the singular means each tax liability stands alone. So if a taxpayer owes $30,000 for 2017, 2018, and 2019, the taxpayer does not have a seriously delinquent tax debt. Reinforcing that idea is that one of the statutory exceptions references the NFTL CDP procedure which, of course, is available for each separate tax liability.
However, IRS guidance takes the position that the statutory term is cumulative of all a taxpayer’s tax liabilities, for all years and all types of taxes, not just the liability for one particular kind of tax for one particular period. Thus, for certification purposes, the IRM says, at that “The $50,000 threshold, which is indexed yearly for inflation, is the aggregate unpaid balance of assessment.” 220.127.116.11.2(2). Using my simplistic example above, that taxpayer would have a seriously delinquent tax debt within the statute’s meaning under the IRS’s interpretation because the aggregate liability exceeds the threshold. The IRS will put a computer Transaction Code in each of the three modules to reflect that the debt in each module has the status of being seriously delinquent.
Third, the fluctuation over time of a taxpayer’s tax debt creates even more complexity. Recall that the point of certification is to get taxpayers to pay up. So the statute also provides that when a taxpayer no longer has “a seriously delinquent tax debt” the IRS must send another certification to the State Department to “decertify” a taxpayer, if you will.
You might think that paying down your aggregate tax debt to below $50,000 would trigger a decertification. You would be wrong. While the IRS is happy to add up all the different tax debts to see if they aggregate to more than $50,000, the reverse is not true. IRM 18.104.22.168.2(2) says “Once the taxpayer is certified, paying the account below the $50,000 threshold (or the threshold amount indexed for inflation effective at the time of certification) will not result in decertification. Certification will not be reversed unless all certified modules for which notice of the certification have been sent have been fully satisfied (e.g. Status 12), become legally unenforceable, or meet the criteria for reversal in accordance with IRM 22.214.171.124.8.”
You see how this process creates a one-way ratchet? New liabilities are added as a basis for certification but paydown or removal of old liabilities does not trigger decertification. The IRS does not allow decertification until all certified tax modules meet the decertification criteria whether statutory or IRM (payment, bankruptcy, combat zone, etc.).
According to this 2019 TIGTA report, between January 18, 2018 and December 21, 2018 the IRS certified 306,988 taxpayers, involving 1,101,865 certified tax modules. During that same period the IRS decertified 68,764 taxpayers, involving 275,080 tax modules.
Judicial Review of the Process
When the IRS decides to certify a taxpayer as having a seriously delinquent tax debt, it sends the taxpayer a Notice CP508C. That is a ticket for judicial review, albeit an uncertain one, as we learned in Lesson From The Tax Court: Cheshire Cat Jurisdiction Over Passport Revocation Petitions, TaxProf Blog, June 29, 2020.
Section 7345(e) permits taxpayers who disagree with the certification to take their CP508C ticket and file suit either in federal district court or in Tax Court. The statute permits both courts to “determine whether the certification was erroneous or whether the Commissioner has failed to reverse the certification.” If the court determines the IRS either certified in error or failed to decertify, the statute “then the court may order the Secretary to notify the Secretary of State that such certification was erroneous.”
That’s it. That is all the Tax Court or federal district can do. In the few cases that have arisen, the Tax Court has resolutely read this language to mean that it will not review the merits of the assessed liabilities. See Ruesch v. Commissioner, 154 T.C. 289 (2020). That is, a certification would not be erroneous simply because the liabilities included in the certificate were wrongfully assessed. However, to date, I have seen no challenge to the IRS procedure of aggregating multiple years.
If the statute is unconstitutional, however, then every certification would be “erroneous” and so one would think that a taxpayer could challenge a certification on that basis. Before looking at today’s lesson on why the Tax Court did not let a taxpayer do that, let’s look briefly at the potential constitutional attack.
Law: Substantive and Procedural Due Process
The Fifth Amendment to the U.S. Constitution says that the federal government cannot take a person’s liberty or property without something called “due process of law.” That idea applies to the states as well through operation of the Fourteenth Amendment.
Both Amendments contains two ideas about “due process.” First is the idea of “procedural” due process. That is the usual one we think of. It’s the idea that the government cannot take liberty or property without following proper procedures, procedures that give the deprived person a meaningful opportunity to be heard. The classic case here is a state tax case, Londoner v. Denver, 210 U.S. 373, 386 (1908) (“a hearing in its very essence demands that he who is entitled to it shall have the right to support his allegations by argument however brief, and, if need be, by proof, however informal.”).
The second idea is called “substantive” due process. Some liberty or property interests are so substantively important and fundamental to our democracy that the government may not take them away without a very strong justification, regardless of how scrupulously fair the deprivation procedures may be.
One such right, for example, is the right to travel freely between the states. Paul v. Virginia, 75 U.S. 168 (1869) (“without some provision . . . removing from citizens of each State the disabilities of alienage in other States, and giving them equality of privilege with citizens of those States, the Republic would have constituted little more than a league of States; it would not have constituted the Union which now exists.”).
The right to interstate travel was sorely tested during the Depression when many states enacted barriers to interstate migration. California was one such state, whose laws make it a misdemeanor for any person to bring an indigent person into the state. While California provided plenty of procedural process for the enforcement of the criminal law, the Supreme Court struck down the statute. Edwards v. California, 314 U.S. 160 (1941). The majority found a commerce clause violation, but the four concurring opinions all grounded their opinions on the idea that California did not have a sufficient reason to deprive citizens of the fundamental right to travel. Thus Justice Douglass wrote: “The right to move freely from State to State is an incident of national citizenship protected by the privileges and immunities clause of the Fourteenth Amendment against state interference.” Id. at 178. Justice Jackson agreed, pointing out that such a right could only be overcome by sufficiently strong state interest and here, California’s desire to keep out the poor was not sufficient.
In contrast to the right to interstate travel, I have found no cases holding or implying that the right to travel overseas is a fundamental right protected by substantive due process. Simply put, one does not have a constitutional right to go to Bagdad. Still, the right to pass freely from the U.S. to a foreign country is still a liberty interest and so protected by procedural due process. As Justice Brennan famously put it: "One may not have a constitutional right to go to Bagdad, but the Government may not prohibit one from going there unless by means consonant with due process of law." Cafeteria Workers v. McElroy, 367 U.S. 886, 894 (1961).
In today’s lesson, a taxpayer was worried that the passport revocation procedure would deprive him of the right to go to Bagdad (Singapore, actually, but same idea).
Dr. Robert Rowen is an agile tax scofflaw who resolutely resisted filing returns and paying taxes from at least 1994 through 2007, despite criminal prosecution and deployment of all the usual collection tools. Op. at 5-7. From all appearances he is a true hobbyist. Over time he built up a most impressive tax delinquency of just under $500,000, generally by taking advantage of all the tricks well-funded taxpayers use to hinder and delay collection (hello CDP!). During that time he traveled frequently overseas for various reasons. As of the date of trial in Tax Court, Dr. Rowen held a valid passport, due to expire in 2024.
In 2018 the IRS certified Dr. Rowen as a person who owed a seriously delinquent tax debt. It sent the certification to the State Department and the CP508A to him. Judge Toro notes in the opinion that as of August 20, 2020, the State Department had not acted to take the passport away. So presumably he can still travel on that passport until it expires. After that, however, the mandatory provisions codified over in title 22 will prohibit the State Department from renewing his license unless the IRS decertifies him.
Dr. Rowen presented his judicial review ticket to the Tax Court where he argued “that section 7345 is unconstitutional because it violates the Fifth Amendment’s Due Process Clause.” Op. at 17. Apparently recognizing that argument gets him nowhere when the deprivation is of the right to international travel, Dr. Rowen also argued “that section 7345 violates his right to travel under the [Universal Declaration of Human Rights].” Id.
Lesson 1: The Difference between an Act and Codification
Dr. Rowen wanted the Tax Court to evaluate whether the passport revocation process complied with both procedural and substantive due process commands of the Fifth Amendment. But his lawyer apparently did not understand the difference between an Act of Congress and the codification of the Act. His lawyer simply pled and argued about only that portion of FAST Act §32101 codified in title 26, §7345.
Judge Toro saw in that failure an opportunity. He held that §7345, standing alone does not deprive Dr. Rowen of anything at all. He writes “The plain text of section 7345 imposes no prohibition on international travel. Section 7345 merely provides a process by which the Commissioner may certify to the Secretary of the Treasury the existence of a seriously delinquent tax debt and the Secretary of the Treasury in turn transmits that certification to the Secretary of State.” And if that was not clear enough, Judge Toro later writes: “section 7345… simply does not authorize any passport-related decision and therefore does not prohibit international travel.”
Judge Toro used similar reasoning to reject Dr. Rowen’s Universal Declaration of Human Rights argument. Op. at 22-23. Section 7345, standing alone, does nothing except require the Secretary of Treasury to send a list to the Department of State.
You see the lawyer's goof? As Judge Marvel notes in her concurrence: “Dr. Rowen raised issues challenging the constitutionality of FAST Act section 32101 in substance but phrased them as challenges to section 7345. ... Because Dr. Rowen’s arguments are not a model of precision, I agree that the approach taken in the opinion of the Court is reasonable. Dr. Rowen is the master of his claims, and it is fair to hold him to his words.”
And that, dear readers, is how the Tax Court dodged having to decide the constitutional attack. What do you think? Successful dodge or not?
Comment: Choice of Courts
Dr. Rowan could have chosen to file his suit in federal district court. I do not know why he did not do that. As Judge Marvel notes in her opinion, plenty of other taxpayers are doing so. I think he would have had a better shot at getting to the merits of his claim, to the extent his claim has any merit. As to that...
Comment: Is There A Legit Constitutional Objection?
No. Dr. Rowen’s constitutional objections are bogus, for two reasons.
First, nothing in the passport revocation process raises substantive due process concerns. The FAST Ac does not restrict interstate travel at all. So nothing to see there. And international travel is not a constitutional right. While it is a “right” given in the Universal Declaration of Human Rights, that Covenant is not self-executing. As the Supreme Court pointed out, the United States ratified the Universal Declaration of Human Rights “on the express understanding that it was not self-executing and so did not itself create obligations enforceable in the federal courts.” Sosa v. Alvarez-Machain, 542 U.S. 692, 734 (2004).
Second, nothing in the FAST Act raises procedural due process concerns. The process by which Dr. Rowen was assessed tax liabilities gave him manifold opportunities to be heard, and he continues to have the ability to pay the taxes, then sue for refund. See Phillips v. Commissioner, 283 U.S. 589 (1931)(administrative collection process, including liens and levies, was made constitutional even as against transferees because of tax determination process). And the process by which he will lose his passport also gives him ample ability to contest the accuracy of any IRS determination sent to the State Department.
Bryan T. Camp is the George H. Mahon Professor of Law at Texas T. University School of Law. He invites readers to return to TaxProf Blog each Monday for a new Lesson From The Tax Court.