The Internal Revenue Service wants to collect taxes on income earned outside of the United States. The Foreign Account Tax Compliance Act (“FATCA”) is one method that the IRS and the U.S. Department of Treasury have employed in an attempt to improve financial reporting requirements for U.S. citizens abroad.

Certain foreign companies and individuals with foreign assets are subject to the provisions of the FATCA. Failure to comply with the FATCA can result in delinquent tax assessments and severe penalties. In addition to the FATCA requirements, many U.S. expatriates must still file taxes in United States, and the failure to do so can also lead to civil and criminal penalties.

The IRS is concerned with international noncompliance and wants to collect from delinquent taxpayers. The IRS does this through its international tax collection efforts.

Internal Revenue Service needs to enhance international collection efforts

Recently, the Treasury Inspector General for Tax Administration performed an audit of the Internal Revenue Service “to evaluate the IRS’s collection efforts on delinquent taxpayers residing in foreign countries.” In its audit report, the Treasury Inspector General found that international tax compliance is a “significant” concern for the IRS.

The Treasury Inspector General found that the IRS must enhance its collection efforts to ensure international U.S. taxpayers comply with their tax obligations. A lack of proper management of the IRS’s collection efforts has been cited as a primary concern for its collection failings. In this regard, the report stated that the IRS does not have:

● Adequate policies, procedures, position descriptions, or the training needed;

● A specific inventory selection process to ensure the highest risk are worked;

● Separate performance measures and enforcement results; and

● A process to measure the value of the “Customs Hold” as an enforcement tool.

The Treasury Inspector General proposed several recommendations to rectify these deficiencies, including developing a formal plan, updating collection guidance to provide specific policies and procedures to international revenue officers, and developing performance measures and enforcement results that are separate from domestic collection.

Customs Holds as a tool for international tax collection efforts

The report recommended one area in particular that could help improve international collection efforts: Customs Holds. A Customs Hold is a process that permits international revenue officers to put a delinquent taxpayer into the Treasury Enforcement Communication System. Once in the system, the U.S. Department of Homeland Security notifies the IRS whenever the taxpayer enters the United States. A Customs Hold is apparently one of the most effective tools when dealing with delinquent taxpayers.

The Treasury Enforcement Communication System maintains of list of delinquent taxpayers that have Customs Holds. There are about 1,700 delinquent taxpayers on the list who owe about $1.6 billion in back taxes.

The IRS agreed with the recommendation to increase enforcement in this area and is working with the Department of Homeland Security to improve its collection efforts through Customs Holds.

Contact an international tax attorney

If you have any questions regarding international tax rules and regulations, Janathan L. Allen, APC’s California tax attorneys can help answer your questions. Our international tax attorneys have extensive experience concerning expatriate tax services and tax preparation.

Contact our office today for a free consultation. We are based in San Diego, California, and we have several offices throughout Southern California.


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