What Collection Efforts (if any) will the IRS Undertake to Collect U.S. Income Taxes from the Gain from the Sale of the London Mayor’s House?
What Collection Efforts will the IRS Undertake to Collect U.S. Income Taxes from the Gain from the Sale of the London Mayor’s House?
U.S. citizens and lawful permanent residents (LPRs) residing overseas must always consider what collection efforts the U.S. government might undertake for taxes owing.
I have posed the question regarding the London Mayor, Boris Johnson, since it raises a number of unique issues. First, under the law, the IRS should administer Title 26 the same for high profile, political, non-political, educated and uneducated individuals. In practice, the judgment of a particular Revenue Agent (and his or her manager) often weighs into how a case is pursued; or not pursued.
The fact that Boris Johnson is a public individual, does impose certain limitations on the ability to investigate his particular case. That is largely because of Department of Justice policy. As explained in the last post, only the Tax Division of the Department of Justice can authorize warrants of public officials, which presumably would extend to London Mayor Boris Johnson. See, 6-4.130, Search Warrants.
Previous posts have explained some of the basic legal tools at the disposal of the IRS and the Department of Justice, Tax Division. See an earlier post, U.S. Enforcement/Collection of Taxes Overseas against USCs and LPRs – Legal Limitations and the following excerpt:
1. INFORMATION – The collection of asset and financial information under FATCA has a very “long arm” around the world. Indeed, the image of the Uncle Sam octopus published in the June 28, 2014 article in the The Economist entitled Taxing America’s diaspora: FATCA’s flaws captures well the idea of the reach of FATCA.
2. INFORMATION VS COLLECTION – However, enforcing tax assessments and penalties and collecting against assets located outside the U.S. is a very different legal question, without such a “long arm”; simply because the reach and jurisdiction of U.S. law is necessarily limited and regularly in conflict with local laws of different countries.
To say it another way, Uncle Sam can indeed enforce the collection of financial and asset information under FATCA, due to the economic costs and ramifications to financial institutions and their investors if they did not comply with the automatic information exchange. However, Uncle Same cannot simply enforce the collection of U.S. taxes and penalties through the worldwide financial institutional network, the same way it can in the U.S.
The U.S. has broad lien, levy and seizure powers under U.S. tax law. The IRS can simply seize assets from U.S. bank accounts without going to a judge or court for final (or jeopardy) tax assessments provided they comply with various provisions of the law. This is not a typical concept in the law for other creditors (other than the IRS) who must generally first take steps through the courts to get some type of judicial action (e.g., a court order) before simply seizing and taking assets from an individual.
The IRS’s broad lien and levy powers against assets, however, has significant limitations overseas. See the 1998 Treasury Report – Sometimes Old is as Good as New – 1998 Treasury Department Report on Citizens and LPRs, I have worked with IRS Revenue Officers who specialize in international collection matters who argue and assert they can merely exercise this lien and levy power overseas against foreign financial institutions. However, this is where the power of the IRS comes to a screeching halt (or at least a major slowdown); when the collection of overseas assets is at stake.
The IRS is not without remedies to collect foreign assets, but it is not a simple process; if it can be done at all in any particular circumstance.
Finally, it is worth noting that a powerful tool at the disposal of the IRS (working in conjunction with the Department of Homeland Security) is the TECs database, which tracks the movement of individuals, specifically including U.S. citizens, who are necessarily U.S. taxpayers. See a prior related post: “Neither Confirm nor Deny the Existence of the TECs data”: IRS Using the TECs Database to Track Taxpayers Movements –
Time will tell, how this tool is used in practice against U.S. citizens residing overseas; particularly those with accounts in various banks that have been the highlight of U.S. international tax evasion investigations, such as UBS, Credit Suisse and HSBC (see, The Guardian, US government faces pressure after biggest leak in banking history).
2 thoughts on “What Collection Efforts (if any) will the IRS Undertake to Collect U.S. Income Taxes from the Gain from the Sale of the London Mayor’s House?”
March 6, 2015 at 6:18 am
Stateside Americans just really need to let go of expats. Stateside Americans have no respect for expats, don’t care about them and want for them to renounce anyways, so just let them go. For being the only industrial nation which double-taxes its expats, the US really needs to treat its expats much better than how it is currently doing so.
March 8, 2015 at 12:47 am
This is a common view of many U.S. citizens residing outside the U.S. However, it is a policy question for the U.S. Congress and the President, whether to change the law of U.S. citizenship based taxation. To date, the law is what it is. I have made a proposal (along with Professor Reuven Avi-Yonah) to the Joint Committee of Taxation and the tax counsel for the Senate Finance Committee to repeal U.S. citizenship based taxation.
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, 2013.
In the meantime, the IRS and Tax Division of the Department of Justice are tasked with enforcing the law as it is; which is U.S. citizenship based taxation.