IRC 7345(b)(1) defines seriously delinquent tax debt as the unpaid, legally enforceable federal tax liability "of an individual." A corporation cannot hold a passport, so a corporation's tax debt is not certified. Business owners sometimes stop reading there.

They should keep reading. The Internal Revenue Manual is specific about which business liabilities end up on an individual's certification, and the list includes the one that shows up most often in small-business collection cases: the trust fund recovery penalty.

What the IRM counts

IRM 5.19.25.3 says that, unless an exclusion applies, a seriously delinquent tax debt includes tax assessments made under an individual's taxpayer identification number, whether a Social Security number or an employer identification number, and it lists examples:

  • U.S. individual income taxes
  • trust fund recovery penalties
  • business taxes for which the individual is liable
  • other civil penalties

The IRS passport page uses nearly the same words, listing "trust fund recovery penalties, business taxes for which taxpayers are personally liable for" among certifiable debts.

IRM 5.19.25.8 adds the mechanics: the CP508C may identify more than one taxpayer identification number for a specific taxpayer, and both individual and business account liabilities may be used to determine whether the taxpayer meets the threshold. That aggregation is what pushes many owners over the line. A $40,000 personal income tax balance and a $30,000 trust fund penalty are, together, more than the 2026 threshold of $66,000.

The trust fund recovery penalty, briefly

When a business withholds income tax and the employee share of Social Security and Medicare taxes from paychecks and does not pay them over, IRC 6672 makes any person required to collect and pay over the tax who willfully fails to do so liable for a penalty equal to the total amount not paid over. Once assessed, that penalty is the individual's own liability, recorded on the individual's account.

The mechanics of how the IRS investigates and assesses this penalty, including the interview and the proposed assessment letter, are their own subject. For passport purposes, what matters is simple: once a trust fund recovery penalty is assessed against you and goes unpaid, it is an individual federal tax liability, and it counts.

The IRM language also reaches assessments made under an individual's own employer identification number and business taxes for which the individual is liable. A sole proprietor running payroll is the most common example.

What does not count

A corporation's own unpaid taxes are the corporation's liability. They do not appear on a shareholder's certification just because the shareholder owns the company. The individual exposure comes through the trust fund recovery penalty, not through ownership.

The non-tax items listed in IRM 5.19.25.3 also never count: shared responsibility payments, criminal restitution, child support, and FBAR penalties.

And the same exclusions apply to business-related balances as to any other: an installment agreement being paid on time, a pending offer, hardship status, a timely CDP hearing on a levy, bankruptcy, and the rest of the IRC 7345 exclusion list.

Why owners get surprised

Three patterns explain most of the surprise.

The first is aggregation. The owner is tracking the company's balance and their own 1040 balance separately, and neither one looks like $66,000. Combined, they are.

The second is timing. A trust fund penalty can be assessed long after the business stopped operating. By then the owner has moved on and assumes the old company's problems died with it. They did not. The penalty is personal.

The third is the levy trigger. Business owners often experience levies on business bank accounts and receivables before anything touches them personally. But the passport test looks at your individual account. Once the IRS files a lien or makes a levy on the assessed trust fund penalty, and the balance is over the threshold, the individual is certifiable. See the threshold and triggers for the exact rules on liens, hearing rights and levies.

The window before the penalty is assessed

Certification requires an assessed liability. Under IRC 6672(b), the IRS cannot impose the trust fund recovery penalty unless it first notifies you in writing, and that preliminary notice must precede notice and demand by at least 60 days. Until the penalty is actually assessed, it cannot count toward the passport threshold.

That gap is valuable. It is the time to evaluate whether the proposed penalty is correct, whether the business can pay down the underlying trust fund balance, and whether your personal account is close enough to the threshold that a new assessment would push it over. Once the penalty is assessed, any filed lien or levy on it can complete the certification test quickly.

Resolving business-driven certifications

The fix depends on which balances are certified. Read the CP508C carefully, because it lists each certified period and identification number. Then match the solution to the debt.

  • If the certified debt is a trust fund recovery penalty, an installment agreement covering it, an offer in compromise, or hardship status can each move it out of seriously delinquent status. Payments the business makes on its own trust fund liability can also matter, because IRS Policy Statement 5-14 says the withheld taxes will be collected only once, whether from the business or from one or more responsible persons.
  • If the certified debt is a business tax assessed against you as a sole proprietor, it is resolved like any other personal tax debt.
  • If the certification combines personal and business balances, the resolution has to cover every certified period. An agreement on the 1040 balances alone leaves the trust fund penalty certified, and you stay certified.

That last point is where many owners lose weeks. IRM 5.19.25.10 decertifies a taxpayer only when the last certified module is reversed. A partial fix is no fix for passport purposes. The firm's main site covers payroll tax problems in more depth, and the passport consequence is one more reason to address the trust fund penalty instead of letting it sit.

When the trust fund penalty itself is wrong

Sometimes the right answer is that the penalty should not have been assessed against you at all. You were not a responsible person, or you did not act willfully. That is a liability dispute, and a passport lawsuit is the wrong forum for it. The Tax Court held in Ruesch v. Commissioner, 154 T.C. 289 (2020), that it cannot redetermine underlying liability in a section 7345 case.

A liability challenge belongs in the forums that allow one, such as a Collection Due Process hearing if you did not have a prior opportunity to dispute the penalty, or a refund claim and suit. While that fight is underway, consider a collection alternative that takes the debt out of seriously delinquent status so the passport is not held hostage to the timeline of the liability case. The court route on certification itself is covered in challenging a certification in court.

The bottom line for business owners

If you own or run a business with payroll, assume the IRS can see both your personal and business-related liabilities when it decides whether to certify you. Check your individual transcripts for any assessed trust fund penalty. Add it to your personal balance. Compare the total to the current threshold. If you are close, the cheapest moment to act is before the certification, when a pending installment agreement request or a pending offer can keep it from happening at all.

If you have already been certified because of a trust fund penalty, the exits are the same as for any certification, and so is the order of operations: resolve every certified period, confirm the IRS has posted it, then ask for reversal. The corporate shield protects you from a lot. It does not protect you from a penalty Congress wrote to reach the people who decide which bills get paid.