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.
