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How Can The IRS Enforce Tax Collection Overseas?

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Enforcement: Collecting United States Taxes Abroad

It is difficult for the IRS to collect taxes if they are assessed against a US/non-US taxpayer assuming the person is overseas and has no US assets. Once an assessment has been issued, procedural mandates require that the IRS give the taxpayer notice of the assessed amount and demand payment within 60 days.  If the taxpayer fails to pay the assessed amount after such demand, a so-called federal tax lien arises which attaches to the taxpayer’s property wherever situated, including property located in a foreign jurisdiction. The IRS has no express statutory authority to take administrative collection action against such foreign-situs property.

Using Tax Treaties

If a tax treaty is in place between the US and the foreign jurisdiction where the taxpayer has assets,  it may contain a collection assistance provision.  The United States has 64 bilateral income tax treaties currently in force. Only a small percentage of tax treaties negotiated with the US currently contain a collection assistance provision, although this may change as the US and other countries have clearly evidenced a strong desire to join forces in efforts to crack down harder on tax evasion. Of the 64 income tax treaties the US has negotiated, only 5 of them have expanded collection provisions — Canada, Denmark, France, Netherlands, and Sweden. Even though these treaties contain somewhat  robust collection assistance provisions, there are many ambiguities and uncertainties as to their parameters.  Twenty-four bilateral income tax treaties have a limited tax assistance collection provision, but these are so ambiguous that commentators have noted they probably have very limited use. Read more

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