Court rejects passport challenge over trust fund tax penalty

Kavan Shaban v. Commissioner. United States Tax Court. No. 4885-25P.

A taxpayer cannot use a passport revocation case to dispute the underlying tax liability once the IRS has properly assessed the debt and followed the statutory collection steps.

Holding

The Tax Court held that the IRS properly certified Kavan Shaban as having a “seriously delinquent tax debt” under §7345 and rejected his challenge to that certification.

Why It Matters

• Routine application of §7345 passport rules. The Court again confirmed that passport certification cases are narrow proceedings focused only on whether statutory certification requirements were met.

• Underlying liability cannot be relitigated. Even compelling facts, including embezzlement by a business partner, do not allow taxpayers to contest the tax liability itself in a passport case.

• Procedural deadlines matter. Failure to request a collection due process hearing after lien and levy notices removes later opportunities to challenge the liability.

• Automation does not invalidate certification. IRS computer systems may identify accounts eligible for certification as long as a properly delegated IRS official approves the final certification.

Key Facts

• Kavan Shaban is a physician who owns several family businesses, including Persona Doctors HQ, LLC.

• His brother managed payroll and tax filings for the businesses beginning in 2007.

• In 2019, Shaban discovered that his brother had embezzled roughly $9 million, including payroll taxes that should have been paid to the IRS.

• The IRS later assessed trust fund recovery penalties (TFRPs) against Shaban for unpaid employment taxes for several quarters in 2018 and 2019.

• On September 15, 2023, the IRS assessed the penalties and issued a balance-due notice.

• The IRS later filed a federal tax lien and issued a levy notice. Shaban did not request a due process hearing on the collection.

• By 2025, the unpaid liabilities totaled $147,274.

• The IRS certified the debt as a “seriously delinquent tax debt” under §7345 and notified the State Department, which can deny or revoke a passport.

• Shaban petitioned the Tax Court to challenge the certification.

Statutory or Regulatory Framework

• §6672 Trust Fund Recovery Penalty (TFRP). A penalty imposed on responsible persons who willfully fail to collect or pay over payroll taxes withheld from employees.

• §7345 Seriously Delinquent Tax Debt. Allows the IRS to certify individuals owing large unpaid tax debts to the State Department for passport denial or revocation.

• A debt qualifies if it:

  • has been assessed,

  • exceeds an inflation-adjusted threshold (about $64,000 in 2025), and

  • is subject to a federal tax lien or levy with collection rights exhausted or lapsed.

• The Tax Court’s jurisdiction in passport cases is limited to deciding whether the certification itself is erroneous.

Arguments

Taxpayer argued:

• The payroll tax liabilities resulted from his brother’s embezzlement and should not be attributed to him.

• The IRS should reverse the certification because he was effectively a victim of identity theft.

• The certification was premature because he still intended to pursue administrative and judicial remedies.

• The certification violated §7345(g) because the IRS relied on a computer system rather than a designated official to identify the debt.

Government argued:

• The statutory requirements for a seriously delinquent tax debt were satisfied.

• Passport certification proceedings cannot be used to challenge the underlying tax liabilities.

• The IRS followed its delegation procedures because the SB/SE Commissioner reviewed and approved the certification list generated by the computer system.

Court’s Reasoning

• The IRS introduced Forms 4340 showing valid assessments of the TFRP liabilities totaling $147,274, well above the statutory threshold.

• A federal tax lien had been filed and a levy issued, satisfying the statutory collection requirements.

• Shaban failed to request a collection due process hearing, so the administrative rights associated with the lien had lapsed.

• The statute requires only that the liability be assessed, not that the Court determine whether the assessment was correct.

• Passport certification proceedings, therefore, cannot address disputes about the underlying TFRP liability.

• The settlement agreement with Shaban’s brother did not legally shift responsibility for the taxes to the brother, leaving the liabilities enforceable against Shaban.

• Identity theft relief in the IRS administrative manual applies only if an identity theft claim has been filed and approved, which did not occur.

• The IRS’s automated system only identifies accounts meeting the statutory criteria. The SB/SE Commissioner still reviews and approves the final certification, satisfying §7345(g).

Result

The Tax Court granted the Commissioner summary judgment and upheld the passport certification.

The Takeaway

Passport revocation cases are strictly procedural. Once the IRS has assessed a qualifying tax debt and followed the lien or levy process, the Tax Court will not revisit the underlying liability even when the taxpayer claims the debt resulted from fraud or misconduct by someone else.

List of Citations

• §7345 – Authorizes IRS certification of seriously delinquent tax debt for passport denial or revocation.

• §6672 – Imposes the trust fund recovery penalty on responsible persons for unpaid payroll taxes.

• Adams v. Commissioner, 160 T.C. 1 (2023) – Clarifies that passport cases cannot be used to challenge underlying tax liabilities.

• Adams v. Commissioner, 122 F.4th 429 (D.C. Cir. 2024) – Confirms limits on collateral attacks in §7345 proceedings.

• Ruesch v. Commissioner, 154 T.C. 289 (2020) – Defines the narrow jurisdiction of the Tax Court in passport certification cases.

• Garcia v. Commissioner, 164 T.C. (2025) – Discusses evidentiary scope in §7345 review proceedings.