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entitled 'Federal Tax Collection: Potential for Using Passport 
Issuance to Increase Collection of Unpaid Taxes' which was released 
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United States Government Accountability Office: 
GAO: 

Report to Congressional Requesters: 

March 2011: 

Federal Tax Collection: 

Potential for Using Passport Issuance to Increase Collection of Unpaid 
Taxes: 

GAO-11-272: 

GAO Highlights: 

Highlights of GAO-11-272, a report to congressional requesters. 

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. 

Table: Examples of Abusive and Criminal Activity: 

Type: Gambler; 
Unpaid tax debt: $46.6 million; 
Description: The individual generally claimed to owe no taxes on 
returns filed in the early 2000s. Received about a $2 million tax 
refund for one of these returns. Subsequent IRS tax examinations in 
the mid 2000s determined that the recipient actually owed tens of 
millions of dollars in taxes for those tax years. Gambled tens of 
millions of dollars at the same time the income taxes were not paid. 
 

Type: World Bank employee; 
Unpaid tax debt: $300 thousand; 
Description: Has not filed income tax returns in the 2000s. Generally 
failed to make any personal income tax payments or withholdings to IRS. Type: Department of State contractor; 
Unpaid tax debt: $100 thousand; 
Description: Owed personal income taxes and trust fund recovery 
penalties for failure to pay employment taxes. Did not file income tax 
returns for 2 years. 

Source: GAO analysis of IRS, State, public, and other records. 

[End of table] 

What GAO Recommends: 

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. 

View [hyperlink, http://www.gao.gov/products/GAO-11-272] or key 
components. For more information, contact Greg Kutz at (202) 512-6722 
or kutzg@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

Magnitude of Unpaid Taxes Owed by Individuals Issued a Passport: 

Examples of Individuals Issued a Passport Involved in Abusive and 
Potentially Criminal Activity Related to the Federal Tax System: 

Conclusion: 

Matter for Congressional Consideration: 

Agency Comments: 

Appendix I: Scope and Methodology: 

Appendix II: Passport Recipients Owe Federal Taxes: 

Tables: 

Table 1: Summary Information on 15 Passport Recipients with Unpaid 
Federal Taxes: 

Table 2: Summary Information on 10 Passport Recipients with Unpaid 
Federal Taxes: 

Figures: 

Figure 1: Passport Recipients with Unpaid Taxes by Tax Type as of 
September 30, 2008: 

Figure 2: Passport Recipients Owing Unpaid Taxes (by age of 
assessment) as of September 30, 2008: 

[End of section] 

United States Government Accountability Office: 
Washington, DC 20548: 

March 10, 2011: 

The Honorable Max Baucus: 
Chairman: 
Committee on Finance: 
United States Senate: 

The Honorable Charles E. Grassley: 
Ranking Member: 
Committee on the Judiciary: 
United States Senate: 

The Internal Revenue Service (IRS) pursues collection of unpaid 
federal taxes to help ensure compliance with and confidence in the tax 
system. As of September 30, 2010, IRS had identified cumulative unpaid 
taxes, including interest and penalties, of about $330 billion. Beyond 
this reported tax debt, the amount of unknown tax debts is 
substantial. This is because the inventory of tax debts excludes 
underreported amounts filed by taxpayers and taxes owed by taxpayers 
who do not file tax returns.[Footnote 1] Given the many challenges 
that IRS faces, the enforcement of the tax laws continues to be on our 
list of high-risk areas. 

In fiscal year 2008, the Department of State (State) issued over 16 
million passports to U.S. citizens. Federal law permits the Secretary 
of State to deny or revoke the issuance of passports in certain 
circumstances. For example, the Passport Denial Program described in 
42 U.S.C. § 652(k) requires State to deny passports to individuals 
based on delinquent child support obligations. Under the program, the 
names of noncustodial parents certified by a state as having 
arrearages exceeding $2,500 are submitted by the Department of Health 
and Human Services to State, which denies them U.S. passports upon 
application or the use of a passport service until the debt is 
satisfied. Since the program was initiated in 1998, about $200 million 
has been collected on child support obligations from this program. 
However, State is not authorized to restrict the issuance of passports 
to individuals because they owe federal taxes. 

Given your interest in the challenges that IRS faces in collecting 
unpaid taxes, and the potential for substantial future tax collections 
from tax-delinquent individuals holding or seeking issuance of a 
passport, you asked us 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. 

To identify the magnitude of passport recipients with unpaid federal 
taxes, we obtained and analyzed IRS tax debt data as of September 30, 
2008, and obtained and analyzed data on passport recipients from State 
for fiscal year 2008. We matched the list of passport recipients with 
IRS tax debts using the Social Security number (SSN). To identify 
examples, we selected 25 passport recipients for a detailed audit and 
investigation of the extent and nature of abusive or criminal 
activity. A nonrepresentative selection of 25 cases were selected from 
the population of passport recipients who owed federal taxes described 
above using a data mining approach based on a number of factors, 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. For these 25 cases, we 
reviewed copies of automated tax transcripts and other tax records 
(for example, revenue officers' notes) and performed additional 
searches of criminal, travel, financial, and public records. These 
case studies serve to illustrate the sizeable amounts of taxes owed by 
some individuals who were issued passports in fiscal year 2008 and 
other characteristics of the cases that can extend beyond the tax 
system. These cases were among the more egregious and cannot be 
generalized beyond the cases presented. A more detailed description of 
the scope and methodology related to our audit and investigative work 
supporting this report is provided in appendix I. 

We conducted this forensic audit from October 2009 to March 2011 in 
accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe 
that the evidence obtained provides a reasonable basis for our 
findings and conclusions based on our audit objectives. We conducted 
our related investigative work in accordance with standards prescribed 
by the Council of the Inspectors General on Integrity and Efficiency. 

Background: 

Individuals with Unpaid Taxes Are Not Prohibited from Receiving 
Passports: 

Federal law does not authorize State to deny the issuance of passports 
to individuals who owe federal taxes. 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. 

Federal Law Prevents Disclosure of Taxpayer Information: 

The protection of taxpayer information is commonly thought to be 
critical to voluntary compliance with the tax code and necessary to 
protect taxpayer privacy. Under current law, taxpayer information is 
protected under 26 U.S.C. § 6103, among other provisions. IRS must 
keep taxpayer information confidential and may only disclose it under 
limited circumstances, e.g., for federal or state tax administration, 
to assist in the enforcement of child support programs, and to verify 
eligibility for public assistance programs, unless the taxpayer 
consents to such disclosure. Individuals or agencies receiving 
taxpayer data must, as a condition of receiving such data, have 
safeguards for the protection of, and for accounting for, the use of 
such data. 

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.[Footnote 2] 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. 
Also, the figures cited within this report only represent passports 
issued for 1 fiscal year. As such, our estimate likely understates the 
total amount of unpaid taxes by all passport holders. According to 
State, there are tens of millions of passport holders, thus the number 
of passport holders with unpaid federal taxes and the magnitude of 
unpaid federal taxes owed by passport holders are likely to be 
substantially higher than the figures cited in this report. 

Tax Characteristics of Individuals Issued a Passport: 

As shown in figure 1, about 90 percent of the approximately $5.8 
billion in unpaid taxes comprised individual income taxes. The other 
10 percent of taxes were taxes owed from "trust fund recovery 
penalties."[Footnote 3] In these situations, IRS found that 
individuals within the business (e.g., corporate officers) were 
personally liable for the payroll taxes withheld from employees' 
paychecks but not forwarded and assessed a civil monetary penalty for 
those withheld amounts.[Footnote 4] 

Figure 1: Passport Recipients with Unpaid Taxes by Tax Type as of 
September 30, 2008: 

[Refer to PDF for image: pie-chart] 

Trust fund recovery penalties: $591 million (10%); 
Individual income taxes: $5 billion (90%). 

Source: GAO analysis of Department of State and IRS data. 

[End of figure] 

A substantial amount of the unpaid federal taxes shown in IRS records 
as owed by individuals issued a passport in fiscal year 2008 had been 
outstanding for several years. As reflected in figure 2, about 41 
percent of the $5.8 billion in unpaid taxes was assessed within the 
last 3 years. Our previous work has shown that as unpaid taxes age, 
the likelihood of collecting all or a portion of the amounts owed 
decreases.[Footnote 5] This is, in part, because of the continued 
accrual of interest and penalties on the outstanding tax debt, which, 
over time, can dwarf the original tax obligation. The amount of unpaid 
federal taxes reported above does not include all tax debts owed by 
individuals issued a passport in fiscal year 2008 because of statutory 
provisions that give IRS a finite period under which it can seek to 
collect unpaid taxes. Generally, there is a 10-year statutory 
collection period beyond which IRS is prohibited from attempting to 
collect tax debt.[Footnote 6] Consequently, if the individuals issued 
a passport owe federal taxes beyond the 10-year statutory collection 
period, the older tax debt may have been removed from IRS's records. 
We were unable to determine the amount of tax debt that had been 
removed. 

Figure 2: Passport Recipients Owing Unpaid Taxes (by age of 
assessment) as of September 30, 2008: 

[Refer to PDF for image: pie-chart] 

Over 10 years[A]: $476 million (8%); 
7 to 10 years: $957 million (16%); 
3 to 7 years: $2 billion (35%); 
1 to 3 years: $1.7 billion (29%); 
Under 1 year: $699 million (12%). 

Source: GAO analysis of Department of State and IRS data. 

[A] The 10-year time limit may be suspended and include periods during 
which the taxpayer is involved in a collection due process appeal, 
litigation, a pending offer-in-compromise, or an installment 
agreement. As a result, the figure includes taxes that are for tax 
periods for over 10 years. 

[End of figure] 

Further, for many of these debts, IRS is attempting to collect using 
the Federal Payment Levy Program (FPLP).[Footnote 7] FPLP is a levy 
program where the Department of the Treasury collects delinquent tax 
debt by continuously levying (offsetting) up to 15 percent of certain 
federal payments (e.g., federal salary payments and certain Social 
Security Administration payments) made to tax debtors.[Footnote 8] IRS 
typically sends their tax debts to FPLP except in cases where: 

(1) IRS has not completed its notification process; 

(2) tax debtors have filed for bankruptcy protection or other 
litigation; 

(3) tax debtors have agreed to pay their tax debt through monthly 
installment payments or have requested to pay less than the full 
amount owed through an offer in compromise; 

(4) IRS determined that the tax debtors are in financial hardship; 

(5) tax debtors are filing an amended return; and: 

(6) IRS determined that specific circumstances (e.g., criminal 
investigation) exist that warrant special exclusion from FPLP. 

Our analysis of Treasury data found that about 42,500 of the 
approximately 224,000 passport recipients were sent to Treasury for 
continuous levy. 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. The IRS tax 
database reflected only the amount of unpaid federal taxes reported by 
the individual on a tax return or assessed by IRS through its various 
enforcement programs. The IRS database does not reflect amounts owed 
by businesses and individuals that have not filed tax returns or 
understated their taxable income and for which IRS has not assessed 
tax amounts due. For example, during our audit, we identified several 
instances from our 25 case studies in which individuals issued a 
passport failed to file tax returns for a particular tax period and 
IRS had not assessed taxes for these tax periods. Consequently, while 
these individuals likely had unpaid federal taxes, they were listed in 
IRS records as having no unpaid taxes for those periods. Further, our 
analysis did not attempt to account for individuals who purposely 
underreported income and were not specifically identified by IRS as 
owing the additional federal taxes. 

In addition, although federal law requires passport applicants 
applying for or renewing a passport to provide their SSN if the 
applicant has a SSN, having a SSN is not a prerequisite to obtaining a 
passport.[Footnote 9] According to State officials, section 7(a)(1) of 
the Privacy Act prevents State from refusing to issue a passport to an 
applicant even though the application does not have a SSN. State 
officials stated that State needs legislation to compel passport 
applicants to provide a SSN and to withhold passport issuance or deny 
the application for failure to do so. Therefore, we found that State 
records did not always contain this key field or contained obviously 
false numbers, as State instructs applicants who do not have a SSN to 
enter all zeros into the SSN field of the passport application. The 
lack of SSNs prevented us from determining whether those passport 
applicants had unpaid federal taxes and, if so, the amount of unpaid 
taxes owed by them. 

Because our $5.8 billion estimate in unpaid taxes only represents 1 
year of passport recipients, the dollar amount of tax debts owed by 
individuals who hold passports is likely to be substantially higher. 
State issues millions of passports each year.[Footnote 10] As such, 
the amount of tax debt for individuals currently holding U.S. 
passports may be in multiples of our $5.8 billion estimate for fiscal 
year 2008. Because passports are typically valid for up to 10 years, 
many of these individuals will likely owe federal taxes at the time 
they apply for renewal of their passports. 

Examples of Individuals Issued a Passport Involved in Abusive and 
Potentially Criminal Activity Related to the Federal Tax System: 

Among the 25 cases involving passport recipients with outstanding tax 
debt that we audited and investigated, we found abusive or potentially 
criminal activity related to the federal tax system. These 25 passport 
recipients either lived outside the United States or resided in 
California, Florida, Illinois, Nevada, New Jersey, New York, Oregon, 
Texas, or Washington. 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. In 
these situations, IRS found that several of these individuals were to 
be held personally liable for the withheld amounts not forwarded and 
assessed a civil monetary penalty for those withheld amounts. 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 revealed that, despite owing 
substantial amounts of federal taxes to IRS, some of these 25 passport 
recipients had substantial personal assets--including multimillion 
dollar homes and luxury cars. For example, one passport recipient 
purchased a house for about $2 million and investment property for 
about $1.5 million while the recipient owed over $1 million in federal 
taxes. Another passport recipient owned luxury vehicles and gambled 
millions of dollars while owing about $47 million in taxes. This 
recipient received multimillion dollars in federal tax refunds to 
support this lifestyle until IRS discovered the tax debts in a later 
examination. 

Our investigations found that several of these recipients used their 
passports to travel internationally for business. Two of the case 
study passport recipients are or had been individuals who worked on 
State contracts who traveled to Europe, Asia, and the Caribbean 
performing work for State. These individuals were or are potentially 
performing sensitive work for the Department of State on behalf of the 
United States. However, 26 U.S.C. § 6103 precludes IRS from disclosing 
their names to State, and precludes us from both disclosing their 
names to State and from contacting State to determine whether these 
individuals have security clearances. 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. Issuing passports to "deceased" 
individuals, in these cases, enabled fraudulent activity of these 
individuals who traveled internationally using the identity of and 
impersonating the deceased individual. We referred these two cases to 
IRS for further investigation. Similar to the State contractors, 26 
U.S.C. § 6103 also precludes us from referring these fraud cases to 
State directly.[Footnote 11] Our investigations also revealed that at 
least four passport recipients currently reside in another country 
while owing federal taxes. For example, we identified one passport 
recipient who filed no tax returns nor paid any taxes to IRS during 
the 2000s, who currently lives overseas while working for the World 
Bank. 

During our investigations, we also noted the following: 

* At least 14 passport recipients did not file their annual income tax 
return for 1 or more years.[Footnote 12] 

* For at least 20 passport recipients, IRS had filed federal tax liens 
against a recipient's property. 

* IRS included at least 16 of the passport recipients in FPLP for 
continuous levy. 

* At least 10 passport recipients had been indicted or convicted of 
violating federal laws.[Footnote 13] These include indictments and 
convictions for controlled substance distribution, making false 
statements to the government, bank fraud, and money laundering. 

* One passport recipient lives in a million-dollar house that is owned 
by the individual's employer. The employer leases the house to the 
recipient for thousands of dollars a month. 

Table 1 highlights 15 of the 25 cases of individuals owing federal 
taxes at the time of passport issuance. Appendix II provides details 
on the other 10 cases we examined. We are referring all 25 cases we 
examined to IRS for further collection activity and criminal 
investigation, if warranted. 

Table 1: Summary Information on 15 Passport Recipients with Unpaid 
Federal Taxes: 

Case: 1; 
Unpaid federal tax[A]: $46.6 million; 
Comments: 
* Individual filed tax returns in the early 2000s showing that no 
federal taxes were owed during this time period. For one return, the 
individual received about a $2 million tax refund. Subsequent IRS tax 
examinations in the mid-2000s determined that the recipient owed tens 
of millions of dollars in taxes; 
* Individual gambled tens of millions of dollars at the same time the 
recipient did not pay the income taxes; 
* Individual also owned two luxury vehicles during this time period; 
* Individual reported tens of millions of dollars in income from a 
limited liability company in late 2000s income tax return. Individual 
paid only about a quarter of the millions of taxes owed for that tax 
return; 
* Individual was a partial owner of a professional sports team; 
* Individual filed an offer in compromise, which would have settled 
the debt for less than $2 million to be paid over 5 years. IRS 
rejected the compromise offer; 
* IRS has filed tax liens. IRS has referred the individual to Treasury 
for the continuous levy program. 

Case: 2; 
Unpaid federal tax[A]: $39.9 million; 
Comments: 
* Individual owes tens of millions of dollars of personal income taxes 
from 1980s through 2000s. Individual generally did not make any 
estimated payments or had withholdings made from income during the 
early 2000s; 
* Individual has not filed personal income tax returns for 4 years in 
the 2000s; 
* Individual was previously convicted for bank fraud in the 1990s; 
* Financial reports indicated individual had foreign cash transactions 
of hundreds of thousands of dollars; 
* Individual has possession of a high-rise condominium overlooking a 
beach; 
* IRS has filed tax liens against the individual's property. IRS has 
referred the individual to Treasury for the continuous levy program; 
* Individual recently made trips to Turkey, Netherlands, Bahamas, 
Italy, United Kingdom, France, Japan, Canada, Antigua, and Barbuda. 

Case: 3; 
Unpaid federal tax[A]: $4.9 million; 
Comments: 
* Individual is in the oil and gas industry. Individual owed personal 
income taxes for 4 years during the 2000s. In addition, individual has 
not filed personal income tax returns to IRS for 2 tax years during 
the late 2000s; 
* Individual was assessed hundreds of thousands of dollars in trust 
fund recovery penalties for failure to pay employment taxes for about 
1 year in the late 2000s; 
* Individual owned several luxury vehicles at the same time the 
individual owed taxes. Individual had owned a multimillion dollar 
house which was recently foreclosed by the bank; 
* IRS has filed tax liens against the individual property. IRS has 
referred the individual to Treasury for the continuous levy program. 

Case: 4; 
Unpaid federal tax[A]: $2.0 million; 
Comments: 
* Individual is a personal injury attorney; 
* Individual significantly underpaid the federal taxes owed for each 
year since the late 1990s. For example, in 1 year, individual owed 
over $400,000 in federal taxes but did not make any federal tax 
payments during that year; 
* Individual is the owner of two corporations. For both corporations, 
IRS records indicate that the individual does not comply with the 
filing and paying of payroll taxes. Individual was assessed tens of 
thousands of dollars in trust fund recovery penalties for several 
years for failure to pay employment taxes in the early 2000s; 
* IRS has filed tax liens against the individual's property. IRS has 
referred the individual to Treasury for the continuous levy program; 
* While owing taxes, the individual owned a sports boat worth tens of 
thousands of dollars; 
* Individual made multiple large cash deposits and withdrawals 
totaling tens of thousands of dollars; 
* While owing taxes, the individual recently traveled to Canada. 

Case: 5; 
Unpaid federal tax[A]: $1.8 million; 
Comments: 
* Individual generally did not make any payments nor had withholdings 
made from income during the 2000s. Recipient failed to file a tax 
return for 1 year during the 2000s; 
* Individual filed an offer in compromise, which would have settled 
the tax debt for about $1,000. IRS rejected the compromise offer. IRS 
records indicate that the recipient used the compromise offer as a 
means to delay the collection process; 
* Individual was previously involved in a ponzi scheme; 
* IRS has filed tax liens against the individual's property. IRS has 
referred the individual to Treasury for the continuous levy program; 
* While not paying taxes, the individual took a trip to Canada. In 
addition, passport recipient told our investigators that he regularly 
travels to Mexico for personal business; 
* IRS closed active collection activities against the recipient 
because IRS records indicate that it cannot locate the taxpayer and 
assets have not been identified. During the course of our 
investigation, our investigators were able to identify and locate the 
individual. 

Case: 6; 
Unpaid federal tax[A]: $1.4 million; 
Comments: 
* Individual is an attorney at a law firm. Individual makes hundreds 
of thousands of dollars per year. In last tax return submitted to IRS 
in the late 2000s, individual reported about $300,000 in taxable 
income; 
* Individual significantly underpaid the federal taxes owed for each 
year in the 2000s. For example, in 1 year, individual owed over 
$200,000 in federal taxes but made only $10,000 in federal tax 
payments during that year; 
* Individual filed an offer in compromise, which would have settled 
the tax debt for about $350,000, to be paid in installments. IRS 
rejected the compromise offer because the individual's first check was 
returned for insufficient funds and taxpayer failed to make estimated 
tax payments during that calendar year; 
* IRS has filed tax liens against the individual's property. IRS has 
referred the individual to Treasury for the continuous levy program; 
* Individual owned a luxury vehicle at the same time the recipient 
owed taxes; 
* In the late 2000s, individual resided in Asia. 

Case: 7; 
Unpaid federal tax[A]: $1.4 million; 
Comments: 
* Individual owed personal income taxes for 2 years during the early 
2000s. Individual has not filed income tax returns since the mid- 
2000s; 
* In the mid-2000s, a law enforcement agency seized assets worth 
millions of dollars based on a drug investigation; 
* IRS has filed tax liens against the individual's property. IRS has 
referred the individual to Treasury for the continuous levy program; 
* Individual owned a luxury vehicle at the same time the recipient 
owed taxes; 
* In the mid-to late 2000s, the individual traveled to Canada, Europe, 
the Caribbean, South America, and Central America while owing taxes. 

Case: 8; 
Unpaid federal tax[A]: $1.1 million; 
Comments: 
* Individual was assessed hundreds of thousands of dollars in trust 
fund recovery penalties for failure to pay employment taxes for over 3 
years in the early 2000s; 
* Individual gambled tens of thousands of dollars at the same time the 
recipient did not pay the income taxes; 
* IRS records indicated that individual significantly understated the 
value of property by about $500,000 in a filed offer in compromise to 
IRS; 
* IRS has filed tax liens against the individual's property. IRS has 
referred the individual to Treasury for the continuous levy program; 
* Individual recently made trips to Mexico while owing federal taxes. 

Case: 9; 
Unpaid federal tax[A]: $500,000; 
Comments: 
* Individual is a physician who owns a practice. Individual owed 
personal income taxes during the 1990s and 2000s. According to IRS 
records, the individual had financial difficulties, in part, due to 
suspension of medical license; 
* Individual generally did not make any estimated payments nor had 
withholdings made during the 2000s. Individual did not make any 
subsequent payment after the taxes were assessed; 
* Individual had a felony conviction for fraudulently obtaining 
controlled substances; 
* Individual did not file an income tax return for 2008; 
* IRS has filed tax liens against the individual's property. IRS has 
referred the individual to Treasury for the continuous levy program; 
* IRS records show that IRS has classified the individual's tax debts 
as currently not collectible because IRS has determined that the 
individual does not have any assets and does not have the ability to 
pay the debts; 
* While owing taxes, individual had overseas trips to Europe. 
Individual recently traveled to the Caribbean, including two cruises 
from the Caribbean and Canada. 

Case: 10; 
Unpaid federal tax[A]: $400,000; 
Comments: 
* Individual works for a paralegal business. The individual is also a 
board member of a nonprofit agency that receives federal government 
grants; 
* Individual has a history of prior businesses that incurred tax 
liabilities and then closed only to re-open as a new business or 
corporation; 
* Individual has submitted several offers in compromise to IRS during 
the 2000s. IRS rejected each of those offers; 
* IRS has filed tax liens against the individual's property; 
* The individual recently took trips to the Caribbean islands and 
Europe. 

Case: 11; 
Unpaid federal tax[A]: $400,000; 
Comments: 
* Individual lives overseas. Individual consults with other 
individuals in creating offshore companies; 
* Individual generally did not make any estimated payments nor had 
withholdings made from income since the late 1990s; 
* Financial reports indicate that the individual owns foreign bank 
accounts in Central America and Canada; 
* IRS has filed tax liens against the individual's property. IRS has 
referred the individual to Treasury for the continuous levy program; 
* Individual recently made trips to Canada, Central America, and 
Germany. 

Case: 12; 
Unpaid federal tax[A]: $300,000; 
Comments: 
* Individual currently lives overseas and currently works for the 
World Bank; 
* Individual has not filed income tax returns in the 2000s. Individual 
generally did not make any estimated payments nor had withholdings 
made from their income; 
* IRS has filed tax liens against the individual's property. IRS has 
referred the individual to Treasury for the continuous levy program. 

Case: 13; 
Unpaid federal tax[A]: $100,000; 
Comments: 
* Individual is a State contractor; 
* Individual owed personal income taxes for several years during the 
late 1990s and early 2000s; 
* Individual did not file income tax returns for 2 years in the late 
2000s; 
* Individual was assessed thousands of dollars in trust fund recovery 
penalties for failure to pay employment taxes in the mid-2000s. IRS 
found that the individual willfully failed to collect, account for, or 
pay over to IRS the employees' share of the trust fund taxes; 
* IRS records indicate that the individual has a long history of 
noncompliance. According to IRS records, individual has been 
uncooperative and has not made any satisfactory arrangements to 
satisfy the outstanding tax liability; 
* IRS filed tax liens against the individual's property. IRS has 
referred the individual to Treasury for the continuous levy program; 
* Individual recently made trips to Middle East, Europe, Africa, and 
the Caribbean. Individual was also on an international cruise. 

Case: 14; 
Unpaid federal tax[A]: $60,000; 
Comments: 
* Individual assumed identity of an individual who died in the 1980s. 
State issued a passport to the individual (referred to as "passport 
recipient") who assumed the identity of the deceased individual; 
* IRS records also indicate that the passport recipient incurred tax 
debts using the identity of the deceased individual during the early 
2000s; 
* The passport recipient received a tax refund (via refund 
anticipation loan) of about $2,500 for a tax year in the early 2000s, 
including an education credit of about $400. Subsequently, the 
passport recipient was assessed additional taxes by IRS after the 
refund was issued; 
* Passport recipient used a fictitious address on the tax return; 
* Passport recipient has not filed any tax returns subsequent to the 
tax return mentioned above; 
* Passport recipient used a mail box store for receiving mail for a 
couple of years; 
* Passport recipient recently traveled to Ghana, Senegal, and France. 

Case: 15; 
Unpaid federal tax[A]: $20,000; 
Comments: 
* Individual assumed the identity of an individual who died in the 
2000s. At the time of death, the deceased individual owed federal 
taxes. State subsequently issued a passport to the individual who 
assumed the identity of the deceased individual; 
* IRS records indicate that the SSN of the deceased person is being 
used; 
* An individual using the deceased person's identity recently traveled 
to Mexico. 

Source: GAO analysis of IRS, State, public, and other records. 

Note: Dollar amounts are rounded. 

[A] Unpaid tax amount as reported by IRS as of July 2010. Unpaid tax 
amount does include penalty and interest. 

[End of table] 

In December 2010, we met with IRS to discuss the 25 cases that we 
investigated and audited to obtain an understanding of IRS's 
investigative and collection activities performed on each case. 
Although IRS did not provide detailed investigative and collection 
activities for each case, IRS officials did broadly discuss certain 
barriers and limitations in the investigation and collection efforts 
by the agency for these 25 cases and other individuals and entities 
that owe taxes. In addition, IRS officials explained the impact 26 
U.S.C. § 6103 has on IRS's ability to share information with State. 
Specifically, IRS officials stated that they cannot inform Department 
of State of the two individuals who have worked on State contracts or 
the two deceased individuals we identified through our investigations 
without the taxpayers' consent. IRS officials stated that 26 U.S.C. § 
6103 prevents this disclosure of the deceased individuals even though 
they may pose security risks to the nation based on the fraudulent 
acquisition of the passport[Footnote 14]. IRS officials stated that 
six of the cases were under criminal investigation or are currently 
under investigation. 

In a December 2010 meeting with IRS officials, we also discussed what 
IRS and State can do to prevent the issuance of passports to these 25 
individuals with federal tax delinquencies. As discussed earlier, 
State currently cannot deny the issuance of passports to individuals 
who owe federal taxes, although passports can be denied for other 
reasons. For State to deny passports for this reason, legislation 
would need to be passed to provide such authorization and to permit 
IRS to disclose taxpayer information. If such a federal law were 
enacted, criteria would need to be established in determining when a 
tax debt meets the passport restriction requirement. In addition, 
Congress or the executive branch may need to decide if certain 
individuals should be exempted from this requirement, such as for 
national security purposes. 

To implement such a restriction, the executive branch may want to use 
the FPLP as the mechanism or as a model to determine whether an 
individual owes federal taxes for purposes of passport restrictions. 
Currently, the Department of Defense (DOD) and Centers for Medicare & 
Medicaid Services (CMS) periodically send their payment information 
(e.g., DOD federal contracts payment data and Medicare claims data for 
physician services, respectively) to FPLP to determine whether those 
payments should be levied for federal taxes. Treasury electronically 
compares the names and Taxpayer Identification Numbers (TIN) on the 
payment files to the control names (first four characters of the 
names) and TINs of the tax debtors. If there is a match and all legal 
notifications have been made, Treasury notifies DOD and CMS to reduce 
(or levy) the federal payment to help satisfy the unpaid federal 
taxes. State could work with IRS and Treasury to develop a similar 
process to determine if the passports should be issued or not because 
of federal taxes owed. 

IRS officials stated that screening passport applicants for federal 
tax debts would likely improve tax collections. Such a requirement 
could serve as an incentive to individuals wishing to obtain passports 
to comply with their tax obligations, thus reducing the level of tax 
delinquencies and promoting compliance. IRS officials stated that 
there may be practical issues that may arise in implementing such a 
requirement. For example, it will require additional work for IRS to 
ensure that State adequately safeguards this taxpayer information. 
State officials indicated that they would like to study any proposed 
legislation to provide additional authority to deny passports 
including constitutional, policy, and practical issues that may arise 
in its application and use. 

Conclusion: 

IRS enforcement of federal tax laws is vital--not only to identify tax 
offenders--but also to promote broader compliance by giving taxpayers 
confidence that others are paying their fair share. As federal 
deficits continue to mount, the federal government has a vital 
interest in efficiently and effectively collecting the billions of 
dollars of taxes owed under current law. Federal law already allows 
the linkage of debt collection with the passport issuance process in 
certain areas, including for certain outstanding State Department debt 
and child support enforcement. The question is whether this is a 
public policy strategy that might have broader application in other 
areas, such as federal tax debt. If so, legislation would be needed to 
facilitate screening for outstanding federal tax liability with 
linkage to the passport issuance process. Such legislation could have 
the potential to help generate substantial collections of known unpaid 
federal taxes and increase tax compliance for tens of millions of 
Americans holding passports. Appropriate criteria and safeguards would 
need to be developed and applied, such as to ensure individual 
privacy, minimize undue approval delays, and permit appropriate 
exemptions. Related programs currently operating can serve as a 
starting point for such considerations. 

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. 

Agency Comments: 

We provided a draft of this report to IRS, State, and Department of 
the Treasury's Financial Management Service (FMS) for their review and 
comment. IRS, State, and FMS did not provide written comments. State 
provided technical comments, which we have incorporated as appropriate. 

As agreed with your offices, unless you publicly announce the contents 
of this report earlier, we plan no further distribution until 30 days 
from the report date. At that time, we will send copies to the 
Secretary of the Treasury, Secretary of State, the Commissioner of 
Internal Revenue, and other interested parties. In addition, the 
report will be available at no charge on the GAO Web site at 
[hyperlink, http://www.gao.gov]. 

If you or your staff members have any questions about this report, 
please contact me at (202) 512-6722 or kutzg@gao.gov. Contact points 
for our Offices of Congressional Relations and Public Affairs may be 
found on the last page of this report. 

Signed by: 

Gregory D. Kutz: 
Director: 
Forensic Audits and Investigative Service: 

[End of section] 

Appendix I: Scope and Methodology: 

To identify the magnitude of unpaid taxes owed by passport recipients, 
we requested from the Department of State (State) a list of passport 
recipients for fiscal year 2008. We also obtained and analyzed 
Internal Revenue Service (IRS) unpaid assessment data as of September 
30, 2008. We matched the passport data to IRS unpaid assessment data 
using the Social Security number (SSN) field. To avoid overestimating 
the amount owed by passport recipients, we excluded from our analysis 
tax debts meeting specific criteria to establish a minimum threshold 
in the amount of tax debt to be considered when determining whether a 
tax debt is significant. The criteria we used to exclude tax debts are 
as follows: 

* tax debts that IRS classified as compliance assessments or memo 
accounts for financial reporting,[Footnote 15] and: 

* tax debts of less than $100. 

The criteria above were used to exclude tax debts that might be under 
dispute or generally duplicative or invalid, and tax debts that were 
recently incurred. Specifically, compliance assessments or memo 
accounts were excluded because these taxes have neither been agreed to 
by the taxpayers nor affirmed by the court, or these taxes could be 
invalid or duplicative of other taxes already reported. We further 
excluded tax debts of less than $100 because we considered them to be 
de minimis amounts for collecting individuals' debts. 

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. We obtained copies of automated tax transcripts 
and other tax records (for example, revenue officers' notes and 
certain individual tax returns) from IRS, and reviewed these records 
to exclude passport recipients who had recently paid off their unpaid 
tax balances and considered other factors before reducing our number 
of case studies to 25. We performed additional searches of criminal, 
financial, and public records. We updated the tax debt amount as of 
July 2010 for these 25 cases, to reflect any additional tax 
assessments, including interest and penalty, or collections that have 
occurred. 

To determine the extent to which State officials are required to 
consider tax debts or other criminal activities in the processing of 
passports, we examined federal law and State regulations. We also made 
inquiries with State officials on whether State specifically considers 
tax debts or performs background checks before the passport is issued. 

Data Reliability Assessment: 

To determine the reliability of IRS unpaid assessments data, we relied 
on the work we performed during our annual audits of IRS's financial 
statements. While our financial statement audits have identified some 
data reliability problems associated with the coding of some of the 
fields in IRS's tax records, including errors and delays in recording 
taxpayer information and payments, we determined that the data were 
sufficiently reliable to address this report's objectives. 

To determine the reliability of the passport data, we interviewed 
State officials responsible for those databases about the quality of 
the data. In addition, we performed electronic testing of the passport 
database and used the IRS tax assessment file to determine the 
validity of specific data elements used to perform our work.[Footnote 
16] Based on our discussions with agency officials and our own 
testing, we concluded that the data used for this report were 
sufficiently reliable for our purposes. 

We conducted this forensic audit from October 2009 to March 2011 in 
accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe 
that the evidence obtained provides a reasonable basis for our 
findings and conclusions based on our audit objectives. We conducted 
our related investigative work in accordance with standards prescribed 
by the Council of the Inspectors General on Integrity and Efficiency. 
Initiation of our audit was delayed significantly because of State's 
refusal to comply with our request for the passport recipient database 
for over a year. We requested access to the database in September 2008 
but did not obtain it until October 2009. 

[End of section] 

Appendix II: Passport Recipients Owe Federal Taxes: 

This appendix presents summary information on passport recipients who 
owe federal taxes associated with 10 of our 25 cases. Table 2 shows 
the remaining 10 cases that we audited and investigated. As with the 
15 cases discussed in the body of this report, we also found abuse and 
potentially criminal activity related to the federal tax system or 
other federal laws. 

Table 2: Summary Information on 10 Passport Recipients with Unpaid 
Federal Taxes: 

Case: 16; 
Unpaid federal tax[A]: $31.7 million; 
Comments: 
* Individual owed personal income taxes from the late 1990s to mid-
2000s. Individual did not file income tax returns since the mid-2000s; 
* IRS collected a small portion of the individual's overdue taxes 
through the continuous levy program; 
* Individual was indicted for fraud in the mid-2000s. Individual's 
trial began about a month after State issued passport and individual 
was convicted about a month later; 
* IRS records indicate that remaining assets are controlled by court; 
* IRS has filed tax liens against the individual's property. IRS has 
referred the individual to Treasury for the continuous levy program. 

Case: 17; 
Unpaid federal tax[A]: $4.7 million; 
Comments: 
* Individual was CEO of company that provides consulting on 
construction projects. Individual owed personal income taxes for 5 
years during the 1990s and 2000s. Individual generally did not make 
any estimated tax payments during the late 2000s. Individual did not 
make any subsequent payments after the taxes were assessed; 
* IRS levied federal payments issued to the individual through the 
continuous levy program; 
* According to IRS records, individual offered to pay about $1.5 
million to settle the debts; 
* IRS has filed tax liens against the individual's property. IRS has 
referred the individual to Treasury for the continuous levy program; 
* Individual recently made trips to Mexico, Canada, Spain, and United 
Kingdom. 

Case: 18; 
Unpaid federal tax[A]: $2.8 million; 
Comments: 
* Individual was assessed hundreds of thousands of dollars in trust 
fund recovery penalties for failure to pay employment taxes for over 7 
years in the 2000s; 
* Individual was recently sentenced for larceny and must pay a 
restitution to cover the stolen funds; 
* IRS has filed tax liens against the individual's property. IRS has 
referred the individual to Treasury for the continuous levy program; 
* IRS has collected over $1,000 through the continuous levy program; 
* Individual recently made trips to Australia, Spain, and the 
Caribbean. 

Case: 19; 
Unpaid federal tax[A]: $1.6 million; 
Comments: 
* Individual was a CEO of a medical company; 
* Individual was assessed tens of thousands of dollars in trust fund 
recovery penalties for several years for failure to pay employment 
taxes in the early 2000s. In addition, individual has not filed an 
income tax return since the mid-2000s; 
* In late 2000s, individual was indicted for Medicare fraud, about a 
month after State issued the passport to the recipient. The individual 
later pled guilty to the fraud; 
* While owing taxes, individual owned a luxury vehicle and also owns a 
multimillion dollar house; 
* IRS has filed tax liens against the individual's property. IRS has 
referred the individual to Treasury for the continuous levy program. 

Case: 20; 
Unpaid federal tax[A]: $1.3 million; 
Comments: 
* Individual is a self-employed physician. Individual also receives 
retirement payments from the federal government; 
* Individual generally withheld less than $1,000 for taxes while owing 
tens of thousands in taxes during the 2000s. Recipient failed to file 
a tax return for 3 years during the early 2000s; 
* IRS has collected tens of thousands of dollars through the 
continuous levy program; 
* At the same time the individual owed taxes, the individual owned 
luxury vehicles and an antique car. Individual also purchased a house 
for about $2 million and a yacht for over $150,000. Individual also 
purchased an investment property for about $1.5 million; 
* IRS has filed tax liens against the individual's property. IRS has 
referred the individual to Treasury for the continuous levy program. 

Case: 21; 
Unpaid federal tax[A]: $500,000; 
Comments: 
* Individual is a retired physician. Individual owed personal income 
taxes for 2 years during the early 2000s; 
* IRS has filed tax liens against the individual's property. IRS has 
referred the individual to Treasury for the continuous levy program; 
* IRS is levying the individual's Social Security Administration 
payments for hundreds of dollars a month; 
* Individual reported capital gains of over $150,000 in the late 2000s; 
* IRS has classified the tax debts as currently not collectible; 
* Individual recently made trips to Asia. 

Case: 22; 
Unpaid federal tax[A]: $400,000; 
Comments: 
* Individual works in the petroleum industry in the Middle East; 
* Individual has not filed individual income tax returns to IRS in the 
2000s. The tax debt amount is based on substitute tax returns prepared 
by IRS for the early 2000s tax years; 
* Financial reports indicate that the individual owns foreign bank 
accounts in the Middle East; 
* Individual recently made trips to the Middle East, United Kingdom, 
and the Netherlands. 

Case: 23; 
Unpaid federal tax[A]: $300,000; 
Comments: 
* Individual is a consultant who currently lives outside of the 
country; 
* Individual generally did not make any estimated payments nor had 
withholding made from income since the mid-1990s. Individual did not 
make any subsequent payments after the taxes were assessed; 
* IRS has filed tax liens against the individual's property. IRS has 
referred the individual to Treasury for the continuous levy program; 
* IRS has classified the tax debts as currently not collectible. 

Case: 24; 
Unpaid federal tax[A]: $200,000; 
Comments: 
* Individual is a Department of Transportation employee. Individual 
told our investigators that a passport may be needed for promotion 
opportunities; 
* Individual owed personal income taxes for a couple of years during 
the mid-2000s while working in the private sector; 
* IRS has filed tax liens against the individual's property. 

Case: 25; 
Unpaid federal tax[A]: $200,000; 
Comments: 
* Individual was an employee of a federal contractor and had 
previously worked on contracts with State and the Department of 
Defense; 
* Individual owed personal income taxes for 3 years during the early 
2000s. Individual did not file income tax returns for 6 years during 
the early and mid-2000s; 
* IRS has referred the individual to Treasury for the continuous levy 
program; 
* Individual recently made trips to Mexico, Europe, and the Middle 
East. 

Source: GAO analysis of IRS, State, public, and other records. 

Note: Dollar amounts are rounded. 

[A] Unpaid tax amount as reported by IRS as of July 2010. Unpaid tax 
amount does include penalty and interest. 

[End of table] 

[End of section] 

Footnotes: 

[1] The tax gap is the difference between the amount of tax imposed by 
law and what taxpayers actually pay on time. The tax gap arises from 
the three types of noncompliance: not filing required tax returns on 
time or at all (the nonfiling gap), underreporting the correct amount 
of tax on timely filed returns (the underreporting gap), and not 
paying on time the full amount reported on timely filed returns (the 
underpayment gap). The tax gap, about $345.0 billion based on updated 
fiscal year 2001 estimates, represents the amount of noncompliance 
with the tax laws. It does not include any taxes that should have been 
paid on income from illegal activities. 

[2] Our analysis included all individuals issued a passport during 
fiscal year 2008. Our analysis of individuals with tax debt as of 
September 30, 2008, did not include (1) tax debts that IRS classified 
as compliance assessments or memo accounts for financial reporting, 
and (2) tax debts of less than $100. See appendix I for more details 
on our methodology. 

[3] Under 26 U.S.C. § 6672, individuals who are determined by IRS to 
be responsible for collecting, accounting for, and paying over payroll 
taxes who willfully fail to collect or pay these taxes can be assessed 
a Trust Fund Recovery Penalty (TFRP). This penalty, typically assessed 
against owners or officers of a corporation, such as a president or 
treasurer, is assessed for the amount of taxes the business withheld 
from its employees' salaries but did not remit to the federal 
government, the so-called trust fund portion of payroll taxes. The 
business itself is still liable for the entire amount of the unpaid 
payroll taxes, but IRS can seek collection from the responsible owner/ 
officers for the trust fund portion of the unpaid taxes when they are 
assessed this penalty. 

[4] Willful failure to remit payroll taxes can also be a criminal 
felony offense punishable by a fine of not more than $10,000, 
imprisonment of not more than 5 years, or both, while the failure to 
properly segregate payroll taxes can be a criminal misdemeanor offense 
punishable by a fine of not more than $5,000, imprisonment of not more 
than 1 year, or both, and the costs of prosecution. 26 U.S.C. §§ 7202 
and 7215. 

[5] GAO, Internal Revenue Service: Recommendations to Improve 
Financial and Operational Management, [hyperlink, 
http://www.gao.gov/products/GAO-01-42] (Washington D.C.: Nov. 17, 
2000). 

[6] The 10-year time limit may be suspended and include periods during 
which the taxpayer is involved in a collection due process appeal, 
litigation, a pending offer-in-compromise, or an installment 
agreement. As a result, figure 2 includes taxes that are for tax 
periods from more than 10 years ago. 

[7] The Department of the Treasury uses the Treasury Offset Program 
(TOP) for FPLP. TOP is an automated process administered by Treasury 
in which certain federal payments are withheld or reduced (offset) to 
collect delinquent tax and nontax debts owed to federal agencies, 
including IRS. For FPLP, Treasury matches federal payments to the tax- 
debt records sent to it by IRS, and when a match occurs, Treasury 
offsets (levies) the federal payments and transmits the amount levied 
to IRS to reduce the tax debtor's outstanding debt and sends the 
residual to the debtor. 

[8] Subsequent legislation increased the maximum allowable levy amount 
to 100 percent for payments to federal contractors and other vendors 
for goods or services sold or leased to the federal government. 

[9] 26 U.S.C. § 6039E. Any individual failing to provide a SSN is 
subject to a $500 penalty, unless it is shown that such failure is due 
to reasonable cause and not to willful neglect. IRS has responsibility 
for assessing such penalties. 

[10] For example, in fiscal year 2009, State issued about 13 million 
passports. 

[11] According to State, State requested disclosure of the identity 
and information on these two persons from IRS pursuant to 26 U.S.C. § 
6103(i)(3)(A)(i)-(ii). 

[12] IRS has requirements for individuals to file that are based on 
filing status, age, and income. The nonfiling of taxes does not 
necessarily indicate nonpayment of taxes. However, the histories of 
these individuals indicate that taxes were likely due. 

[13] In the processing of passports, State officials said that they do 
not have access to law enforcement databases of individuals who are 
arrested or indicted. According to State, if a court, Department of 
Justice, or IRS provided State with a copy of a criminal court order, 
condition of parole, or probation which forbids departure from the 
United States, and the violation of which could result in the issuance 
of a federal warrant of arrest, State would have denied issuance or 
subsequently revoked such person's passport. 

[14] According to State, State requested disclosure of the identity 
and information on these two persons from IRS pursuant to 26 U.S.C. § 
6103(i)(3)(A)(i)-(ii). 

[15] Under federal accounting standards, unpaid assessments require 
taxpayer or court agreement to be considered federal taxes 
receivables. Compliance assessments and memo accounts are not 
considered federal taxes receivable because they are not agreed to by 
taxpayers or the courts. 

[16] Data validation edits include (1) tests to see if numeric fields 
contain nonnumeric data, and (2) tests on a value to see if it falls 
within the range established for the data element. 

[End of section] 

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