The IRS will not proceed with a rulemaking that would have authorized the State Department to disclose taxpayer return information to contractors involved in passport services, calling the proposed rule “unnecessary.” (REG-129260-16, 09/03/2025)
Background
The Fixing America’s Surface Transportation (FAST) Act (P.L. 114-94) added a requirement under IRC § 7345 that the State Department deny, revoke, or refuse renewal of a passport for individuals with “seriously delinquent tax debt.”
The FAST Act, enacted in 2015, defines such tax debt as assessed debt greater than $50,000, adjusted for inflation ($64,000 for 2025). This amount is computed by including interest and penalties. In addition, the debt must be subject to a levy under IRC § 6331, or a notice of lien under IRC § 6323 must have been filed and administrative rights exhausted.
Upon receiving certification from the IRS that an individual has seriously delinquent tax debt, the Treasury Secretary must transmit the certification to the State Department. That department has the sole authority to issue, limit, deny or revoke passports.
Proposed Rule
In March 2018, Treasury and the IRS proposed a rule to allow outside contractors who assist the State Department in carrying out passport services to receive taxpayer return information. (83 FR 10811, 3/13/2018)
Specifically, the proposed rule would have added the State Department to the list of agencies under Reg. § 301.6103(n)-1(a)(1) whose officers and employees may disclose returns and return information for tax administration purposes as needed “in connection with a written contract for the acquisition of property or services.”
Changing Course
Treasury and the IRS have changed course, however, calling the 2018 proposed rule “unnecessary” in this week’s rule withdrawal notice. The notice explains that a broad provision on disclosures of return information for “tax administration” purposes already covers the State Department contractor disclosures.
IRC § 6103, generally, provides that return information is confidential unless disclosure is otherwise authorized. Section 6103 goes on to list several instances where disclosure is permitted. This includes a catch-all provision under IRC § 6103(n) for disclosures “in connection with the processing, storage, transmission, and reproduction of such returns and return information, the programming, maintenance, repair, testing, and procurement of equipment, and the providing of other services, for purposes of tax administration.”
A current regulation, Reg. § 301.6103(n)-1(a)(2)(ii), additionally provides that where a Treasury officer or employee has disclosed return information, any person, or their officer or employee, may “[f]urther disclose the returns or return information, when authorized in writing by the Internal Revenue Service.”
These further disclosures are permitted “to the extent necessary” for tax administration purposes. And under Treasury and IRS’ current reading of the statute, “disclosure of return information for the purpose of carrying out responsibilities under the FAST Act is a tax administration purpose.”
In addition, Reg. § 301.6103(n)-1(a)(2)(ii) explicitly states that such disclosures include those “to an agent or subcontractor of the person, or officer or employee of the agent or subcontractor.”
Treasury and IRS conclude that under current law, tax return information they disclose to the State Department may be further disclosed to subcontractors “to the extent necessary to carry out the tax administration purpose.”
For more on the denial, revocation, or limitation of passports for taxpayers with seriously delinquent tax, see Checkpoint’s Federal Tax Coordinator 2d ¶ V-4023. For more on the disclosure of return information to the State Department for purposes of passport revocation, see Checkpoint’s Federal Tax Coordinator 2d ¶ S-6367.6.
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