August 2022 Foodman Website and JD Supra
IRS Logo

The answer to the question “Can the IRS Collect Assets Abroad”” is yes, based on the Office of Chief Counsel Internal Revenue Service memorandum dated February 24, 2022.  The memorandum discusses the IRS Collection Procedures for Assets outside of the U.S.  The IRS has several collection tools and the use of various information sources available in collection cases where a taxpayer’s assets are located outside of the U.S.  The 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 levy 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”.  Following are several collection tools available to the IRS followed by the IRS commentary to the IRS Program Manager Collection Policy-Global Strategic Compliance:

  1. Input of a Treasury Enforcement Communications System (TECS) Lookout Indicator: “TECS lookout indicators are used to obtain information on a taxpayer’s location. We are not aware of any legal restriction that would prevent the IRS from utilizing this tool in conjunction with any other collection action”.
  2. Initiation of an outbound Mutual Collection Assistance Request (MCAR) to a treaty partner: “Prior to seeking assistance from a treaty partner through an MCAR, the IRS should be able to represent that all appropriate measures to collect the revenue claim that are available under its laws or administrative practice have been pursued. Seeking assistance under an MCAR does not preclude the United States from continuing its efforts to either secure property or personal jurisdiction over the taxpayer”.
  3. Levy on domestic branch of a foreign bank: “We are not aware of any restriction that would prevent the IRS from issuing a levy to a domestic branch of a foreign bank in conjunction with any other collection action”
  4. Suit to repatriate: “We are not aware of any restriction that would prevent the IRS from referring liabilities to the Department of Justice for a suit seeking repatriation of assets in conjunction with any other collection action. The IRS should also be prepared to certify that known domestic sources of collection have been exhausted, or that known domestic assets are insufficient to satisfy the liability”.
  5. Issuance of Letter 6152, Notice of Intent to Request U.S. Department of State Revoke Passport and Referral to U.S. Dept. of State (DOS) for passport revocation after Letter 6152 issuance: Both cannot be pursued simultaneously because the issuance of Letter 6152 and the expiration of the response period set forth in that letter must occur before a referral to DOS for passport revocation.  “We know of no restriction that would prevent the IRS from pursuing passport revocation in conjunction with any other collection action you have identified. After the certification criteria is met and a taxpayer is certified as an individual having a seriously delinquent tax debt under IRC § 7345, the Service may ask the Department of State to exercise their discretion to revoke a taxpayer’s passport”.

What about FATCA?

The Memorandum states that “FATCA data may be used to identify collection cases in most instances, but the authorized uses of particular sets of FATCA data may vary depending on whether they were received pursuant to an international agreement providing for the exchange of information in tax matters (“tax convention”) and the use and disclosure provisions of the applicable tax convention”.

Moreover, “the use of FATCA data to identify and select collection cases for assignment is an authorized use of return information under IRC § 6103(h)(1). Tax conventions to which the United States is a party permit the disclosure of exchanged information to persons and authorities involved in or concerned with the collection of tax. Accordingly, using FATCA data that was exchanged pursuant to a tax convention to identify and select collection cases is also permissible under IRC § 6105(b)(1), provided that the case involves a type of tax that is covered by the relevant international agreement pursuant to which the information was exchanged”.

How does the IRS collection process begin?

The collection process begins when IRS does not receive full and timely payments from a taxpayer after it issues a collection notice. Based on the information in the taxpayer’s 1040 tax return, if the taxpayer does not pay the first notice, IRS sends a second notice, plus additional interest, and penalties as they continue to accrue. The collection process begins when this second – or final 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 of the taxpayer’s current and future property; which includes the taxpayer’s home, car, rights to a property, wages, and bank accounts.
  • Notice of Federal Tax Lien: A public notice informing creditors that there is a Federal Tax Lien attached to the taxpayer’s current and future property and the rights to the property. IRS files this Notice to establish the priority of its claim versus 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 the rights to property. The proceeds of the sale of property, or property rights, will be used by IRS to help pay the taxpayer’s tax debt. The taxpayer’s wages, salary, commission, Social Security, and bank accounts can also be seized and applied to the tax debt. IRS generally sends a Notice of Intent to Levy and Notice of Taxpayer’s Right to a Hearing before any property is seized.
  • Summons: This happens when IRS is having trouble obtaining information to determine the amount of taxes owed, or collecting taxes owed. IRS will serve a summons to a taxpayer (or a third party) to meet with an IRS officer, and provide information, documents and if necessary – testify. The taxpayer could also be required to bring books and records to prepare a tax return.

Don’t underestimate the reach of the U.S. Government

Tax compliance is a top priority for the IRS, and its main objective is to have its collection tentacles secure a worldwide reach.  During the IRS collection process, IRS is authorized to share the taxpayer’s tax information with tax agencies, the Department of Justice, federal agencies, people that the taxpayer authorizes to represent them, and foreign governments (under tax treaties). The law also allows IRS to contact third parties directly, such as neighbors, banks, employers, and employees, to investigate the taxpayer’s case.

Regardless of where you live, the IRS can find you and collect! ©