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Teamwork between the IRS and its Criminal Investigations division could mean drama for HNWIs

Few things would be as frightening for an expat as being stopped at the airport on the way back “home” from a trip to the US. Yet, for some, this could become a real possibility.

One of the tools tax professionals use to keep clients ‘in the know’ is having a constant awareness of the revisions to the US Tax Code. In a revolving door of changes, born from the increasing efforts to collect delinquent taxes, the IRS and its Criminal Investigation division (CI) are working more closely together, the objective being to improve tax compliance – using judicial methods.

Currently, the Code allows the IRS to:

Use your social security payments to pay off the tax due
The payment of US taxes has no statute of limitations, and unless you agree payment arrangements with the IRS it can offset what you owe by using your government benefits until the amount owed is paid.

Levy your foreign bank accounts
If your foreign bank has a branch anywhere in the US, the IRS will consider it fair game to slap a levy on those assets, even though they are outside the US.

Seize your property
The US has treaties with several countries and some of them contain a Mutual Collection Assistance Request clause or MCAR. If you live in a country with an MCAR the IRS can take your property just as easily as if you were living in the States, if you don’t pay your taxes. The details vary, but those countries include, Canada, France, Denmark, Sweden, and the Netherlands.

Garnish your wages
Like your bank, if your employer has offices in the US, the IRS can levy your wages, even if you live and work abroad. However, if your country has an MCAR with the US, it may be able to garnish your wages for any employer in your country of residence.

Data-mining has also been a government method of gathering information and now Uncle Sam is sharing that with the whole IRS family, allowing Revenue Officers access to the Treasury Enforcement and Communications Systems (TECS). This allows access to several federal, state and local databases.  Officers will also have access to recent passport applications and renewals.

And now, the IRS may prevent you from leaving the US if you are tax delinquent.

How is this enforced?
Through a Writ Ne Exeat Republica issued under Section 7204(a) of the Tax Code.  Such a Writ places a restraint upon a taxpayer’s right to leave the United States.  These are not commonly used but are a tool available to the IRS if you have a significant tax liability, reside outside the US, and your assets cannot be readily levied.

The big picture is about paying your taxes. However, tax optimization is something you should always be discussing with a tax advisor.

Source Information:
IRS Manuals/US Tax Code
¹ http://law.justia.com/cases/federal/district-courts/FSupp/235/353/1455065/

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