The answer to the question “Can the IRS collect assets overseas?” multiple collection tools and use of various sources of information available in collection cases where a taxpayer’s assets are located outside of the United States. Collection tools apply when the IRS has attempted to contact a taxpayer, and the taxpayer has neglected or refused to pay, and the IRS has exhausted domestic collection sources.
IRS collection tools
The memorandum states that “the IRS is not prohibited, in general, from pursuing multiple collection activities simultaneously. In many cases, these collection tools can complement each other”. Here are several collection tools available to the IRS, followed by the IRS commentary on the IRS Program Manager’s Collection Policy – Global Strategic Compliance:
- Entry of a TECS (Treasury Enforcement Communications System) watch flag: “TECS watch flags are used to obtain information about a taxpayer’s location. We are not aware of any legal restrictions that would prevent the IRS from using this tool in conjunction with any other collection action.
- Initiating an Outbound Mutual Assistance Collections Request (MCAR) to a Treaty Partner: “Before requesting assistance from a treaty partner through a MCAR, the IRS should be able to declare that all appropriate steps to collect the revenue claim that are available under its laws or administrative practices have been followed. Seeking assistance under an MCAR does not preclude the United States to pursue their efforts to secure the property or personal jurisdiction of the taxpayer”.
- Foreign Bank Domestic Branch Levy: “We are not aware of any restrictions that would prevent the IRS from issuing a foreign bank domestic branch levy in conjunction with any other collection action”
- Suit to repatriate: “We are not aware of any restrictions that would prevent the IRS from referring liability to the Department of Justice for a lawsuit seeking the repatriation of assets in conjunction with any other collection action. The IRS must also be prepared to certify that known domestic sources of collection have been exhausted or that known domestic assets are insufficient to satisfy liabilities.
- Issuance of letter 6152, notice of intent to request US Department of State to revoke passport and referral to US Department of State (DOS) for revocation of passport after issuance of passport letter 6152: the two cannot be prosecuted simultaneously because the issuance of letter 6152 and the expiration of the response period stated in that letter must occur before a referral to DOS for passport revocation. “We are not aware of any restrictions that would prevent the IRS from pursuing passport revocation in conjunction with any other collection action that you have identified. Once the certification criteria are met and a taxpayer is certified as a person with a severely delinquent tax debt under IRC § 7345, the Service may request the Department of State to exercise its authority discretion to revoke a taxpayer’s passport”.
What about FATCA?
The memorandum states that “FATCA data can be used to identify instances of collection in most cases, but permitted uses of particular sets of FATCA data may vary depending on whether or not they were received under a international agreement providing for the exchange of information in tax matters. (“tax treaty”) and the use and disclosure provisions of the applicable tax treaty”.
Additionally, “using FATCA data to identify and select collection cases to assign is a permitted use of feedback information under IRC § 6103(h)(1). United are parties authorize the disclosure of information exchanged to persons and authorities involved or concerned with the collection of tax. Accordingly, the use of FATCA data which has been exchanged in accordance with a tax treaty to identify and select cases of recovery is also permitted under IRC § 6105(b)(1), provided the case involves a type of tax that is covered by the relevant international agreement under which the information was exchanged”.
How does the IRS collection process begin?
The collection process begins when the IRS does not receive full and timely payments from a taxpayer after issuing a collection notice. Based on the information in the taxpayer’s 1040 tax return, if the taxpayer does not pay the first notice, the IRS sends a second notice, plus additional interest and penalties as they continue to accrue . The collection process begins when this second – or last collection notice – is not paid.
The IRS collection process and its actions are summarized in 4 possible scenarios:
- Federal tax lien: A legal claim against all present and future property of the taxpayer; which includes the taxpayer’s house, car, property rights, salaries and bank accounts.
- Notice of Federal Tax Lien: A public notice advising creditors that there is a federal tax lien attached to the taxpayer’s present and future property and rights in the property. The IRS files this notice to establish the priority of its claim over the claims of other creditors. The notice is filed at the local and state levels and is reported to consumer credit reporting agencies.
- Levy: a legal seizure of property or property rights. The proceeds from the sale of property, or property rights, will be used by the IRS to help pay the taxpayer’s tax debt. The taxpayer’s wages, salaries, commissions, social security and bank accounts can also be seized and applied against the tax debt. The IRS typically sends a Notice of Intent to Levy and a Notice of the Taxpayer’s Right to a Hearing before seizing any property.
- Summons: This occurs when the IRS has difficulty obtaining information to determine the amount of taxes owed or to collect taxes owed. The IRS will serve a summons on a taxpayer (or third party) to meet with an IRS agent and provide information, documents and, if necessary, testify. The taxpayer may also be required to bring books and records to prepare a tax return.
Don’t Underestimate the Reach of the US Government
Tax compliance is a top priority for the IRS, and its main goal is to ensure that its collection tentacles have a global reach. During the IRS collection process, the IRS is authorized to share the taxpayer’s tax information with tax agencies, the Department of Justice, federal agencies, persons the taxpayer authorizes to represent them, and governments foreigners (under tax treaties). The law also allows the IRS to directly contact third parties, such as neighbors, banks, employers, and employees, to investigate the taxpayer’s case.
No matter where you live, the IRS can find and collect you!