Enforcement of CBT

One of the main fears of US expats learning about US taxation of nonresident citizens is that the IRS will drain their local bank accounts and force them to pay bankrupting penalties for failure to comply. The purpose of this page is to gather evidence on the reality of IRS enforcement.

One of the main fears that people express is that the IRS will force their bank to pay an outstanding tax liability. The reality

Compliance Rates

This section is for gathering statistics on the level of compliance.

IRS Procedure

This section is for outlining how the IRS collections process works.

Administrative Assistance

There are five US tax treaties with mutual collection provisions, and none of these countries will assist in collecting US taxes accrued while the taxpayer was also a citizen of that other country. ¹⁾ Furthermore, while the US has ratified the original OECD Convention on Mutual Assistance in Tax Matters, the US Senate included a reservation against assisting other countries with collection,²⁾ so the US is unable to use that Convention to get collection assistance from other signatories. In 2015 Congress added a provision to the FAST Act³⁾ that allowed the IRS to work with the Department of State to deny or revoke US passports of individuals with “seriously delinquent tax debt.”⁴⁾ While passport denial will be a problem for those with US citizenship only, dual citizens will only be affected if they wish to travel to the US.⁵⁾ The only other tool available to collect from taxpayers with no US assets is the ability to prevent a delinquent taxpayer from leaving the US,⁶⁾ which requires that the taxpayer be physically present in the US in the first place. The combination of lack of knowledge by US emigrants of their US tax obligations and the inability of the IRS to assess or collect tax from assets outside of the US meant that a large proportion of nonresident US taxpayers were noncompliant before the advent of FATCA.⁷⁾ There is little evidence that FATCA has made much difference in the rate of compliance for these taxpayers, with falling numbers of returns filed from outside the US,⁸⁾ which is probably closely related to a decline in the number of US military personnel stationed overseas.⁹⁾

For a discussion of treaties with mutual collection procedures see http://isaacbrocksociety.ca/2016/11/01/dual-citizens-of-sweden-france-netherlands-denmark-canada-take-note-your-country-will-not-collect-for-the-u-s/

Collections

This section is for gathering information on the rules the IRS must follow to collect, including the ability to levy bank accounts.

US-based Assets

Outline Bank Levy process for assets held in the US.

FATCA

Does FATCA allow my FFI to collect for the IRS? To close my account? (once there's actual information here, cross reference on FATCA page)

Qualified Intermediaries

A frequent response by the compliance industry is that QI banks must comply with an IRS levy request. This is not in the current QI agreement.

¹⁾

B Mallinak, The Revenue Rule: A Common Law Doctrine for the Twenty-first Century, Duke Journal of Comparative & International Law Vol 16 p 79. See the discussion of tax treaties starting on page 94.

²⁾

The US ratified the original OECD Convention on Mutual Assistance in Tax Matters (https://www.congress.gov/treaty-document/101st-congress/6/resolution-text), but refused to agree to provide any assistance in tax collection for other governments (and therefore cannot call on other governments to assist with collection of US tax). The US has signed but has not ratified the 2010 protocol to this Convention.

³⁾

Sec. 32101 of Pub. Law 114-94, Fixing America’s Surface Transportation Act, or the FAST Act, 4 December 2015, added §7345 to the Internal Revenue Code as a revenue offset to help pay for the substantive provisions of the Act.

⁴⁾

§7345 defines a “seriously delinquent tax debt” as a debt in excess of $50,000 (indexed for inflation) which has been assessed and with respect to which the IRS has filed a notice of lien or levy. Debts where the taxpayer has a valid payment agreement with the IRS are excluded.

⁵⁾

8 USC 1185(b) requires that US citizens entering or leaving the US must bear a valid US passport.

⁶⁾

For a discussion of how the Writ Ne Exeat Republica can be used to facilitate tax collection see JA Townsend, Federal Tax Procedure (2017 Practitioner Ed.), available at SSRN: https://ssrn.com/abstract=3011403, page 662 and JA Townsend, Writ Ne Exeat Republica to Restrain from Foreign Travel as Tax Collection Tool (2/11/14), http://federaltaxprocedure.blogspot.com/2014/02/writ-ne-exeat-republica-to-restrain.html.

⁷⁾

W Byrnes, Background and Current Status of FATCA and CRS (Sept 2017 edition), Texas A&M University School of Law Legal Studies Research Paper No. 17-75, 29 Sep 2017, pp. 10-12).

⁸⁾

IRS statistics (available at https://www.irs.gov/statistics/soi-tax-stats-historic-table-2) show that the number of individual tax returns filed from outside the 50 states plus DC has fallen from a high of 1,794,068 returns for 2008 to 751,180 returns for 2015. See further analysis of this data at http://fixthetaxtreaty.org/2018/05/10/does-fatca-stop-tax-evasion/

⁹⁾

K Bialik, U.S. active-duty military presence overseas is at its smallest in decades, Pew Research Center, 22 August 2017 (http://www.pewresearch.org/fact-tank/2017/08/22/u-s-active-duty-military-presence-overseas-is-at-its-smallest-in-decades/). Given that the tax returns of military personnel are not separately stated in the IRS data, it is difficult to determine the number of returns filed by civilian expatriate Americans from publicly available data.

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