How will the IRS collect tax and penalty assessments against former USCs and LPRs who live exclusively outside the U.S.?
How will the IRS collect tax and penalty assessments against individuals who live exclusively outside the U.S.?
This is a practical problem for the U.S. federal government who has laws that extend far beyond its borders. See, for instance, HUGE NEWS – China has “Reached an Agreement in Substance” for a FATCA Intergovernmental Agreement (IGA) – its Affect on USCs and LPRs Living in China and Hong Kong
However, the limits on the enforcement and collection of taxes overseas, beyond U.S. borders is more problematic for the government. Some of the tools at its disposal are as follows:
- Enforcement at the entry at the border (e.g., at points of immigration entry at U.S. airports and border crossings in Canada and Mexico). See an earlier post that discusses the TECS database and its usage by the Internal Revenue Service in U.S. Enforcement/Collection of Taxes Overseas against USCs and LPRs – Legal Limitations
- Limited enforcement authority via income tax treaty. For all practical purposes, it has been nearly impossible for the federal government to use tax treaties to enforce U.S. civil tax judgments against overseas assets of individuals who also reside outside the U.S.
More on this topic will be discussed as case law and policy develops. For now, this may be the weak link in the global enforcement efforts of U.S. law that imposes worldwide taxation on worldwide assets of U.S. citizens residing overseas. See, Co-author. “Tax Simplification: The Need for Consistent Tax Treatment of All Individuals (Citizens, Lawful Permanent Residents and Non-Citizens Regardless of Immigration Status) Residing Overseas, Including the Repeal of U.S. Citizenship Based Taxation,” by Patrick W. Martin and Professor Reuven Avi-Yonah, September 2013.
August 29, 2015 at 5:20 am
For one thing, they can use section 6402(d) to seize refunds owing for tax years where they admitted that refunds were owing, and apply them to penalties asserted[*] for the same and/or other tax years. They can also use liens and levies against assets that come within their reach — for example I warned my wife[**] not to wear her wedding ring if she ever visits the US again.
It appears they can even use section 6402(d) to take seized refunds and apply them to penalties asserted[*] for which they can’t use sections 6320 and 6330. Even when US Tax Court prohibited collection by lien or levy, US Court of Federal Claims allowed partial collection by 6402(d). Since collection isn’t complete, I can’t even sue for refunds of the penalties that they applied the seized refunds towards.
[* Section 6402(d) doesn’t even require assessment. An unfounded assertion is good enough.]
[** She’s an NRA, has never been a USC or LPR, but has assertions and assessments against her. The IRS relied on its fraudulently altered records of our returns besides its fraudulently altered records of withholding. Joint returns were toxic even before FATCA.]