The Internal Revenue Service prosecutes more than 3,000 U.S. taxpayers a year for tax fraud, according to the agency. Criminal tax issues can cause the U.S. State Department to deny a U.S. resident a passport. The Code of Federal Regulations outlines what types of situations can result in the denial of a passport in Title 22, Section 51.70. If the taxpayer wants to reapply after an application rejection, he will have to settle his criminal tax issues with the IRS.
Under federal law, the U.S. State Department cannot refuse to issue or renew U.S. passports because an applicant or passport holder owes back taxes and or has civil issues, regardless of the amount of owed tax. Minor tax issues, such as filing taxes late or levies of assets and bank accounts, do not disqualify a U.S. resident from obtaining a passport.
The State Department will not issue a passport if a taxpayer faces criminal charges for tax evasion, because of the possibility of the taxpayer fleeing the United States to avoid prosecution and civil penalties. Activities the IRS may investigate include illegally sheltering income in offshore bank accounts, selling goods below market value or hiding income illegally to avoid income taxes owed to the IRS.
If the IRS decides to pursue a delinquent tax case criminally in federal court, a federal court may award in favor of the agency, requiring the taxpayer to pay off his debts. Before or after the trial, the IRS can send a notice by fax or mail to the State Department's Office of Legal Affairs that provides identifying information about the taxpayer. The IRS can put out a felony arrest warrant if the taxpayer commits tax fraud and does not turn himself in, and the agency can request that the terms of the taxpayer’s probation or parole prevents him from leaving the country.
Before the State Department issues a passport, the government agency runs the applicant’s name through a central database. This database checks the applicant’s name against federal and state law enforcement databases to ensure that she does not have an outstanding warrants for arrest, probation forbidding departure from the country or federal or state criminal court orders. If the applicant cannot leave the country under the aforementioned restrictions outlined in Title 22, Section 51.70 of the Code of Federal Regulations, the agency will reject the application.