When Does IRS Seize Foreign Assets (Common Examples)

IRS Can Seize Foreign Bank Accounts, Property & Income

Can the IRS Seize Foreign Assets or Accounts?

The United States has entered into many cooperation agreements and treaties with foreign countries, which makes it easier for them to go beyond the U.S. borders to seize accounts and assets of taxpayers who are non-compliant with U.S. tax law. For example, if the U.S. government believes that delinquent taxpayers have accounts and assets overseas then they may be able to contact the foreign financial institution or other agency to place a freeze on the accounts or assets and transfer the money or ownership back to the U.S.. With some countries, the United States has entered a mutual collection agreement which makes it even easier for the government to pursue foreign assets or accounts with taxpayers they believe are non-compliant. Let’s look at a few common examples of how the IRS may proceed with foreign asset/account seizures:

*For all examples, please note that the Taxpayers are U.S. persons for tax purposes who have not made any treaty elections to be treated as a Non-Resident Alien (NRA). Also, these examples are for illustrative purposes only and Taxpayers should consult with a Board-Certified Tax Law Specialist if they have specific questions about their reporting requirements and not rely on this article for legal advice.

Whistleblower Examples

• • • Example: Adam is a U.S. person who has been fraudulently moving money overseas to a foreign bank account. His partner decided to come clean and proactively communicated to the Department of Justice and IRS information about himself and his partner including money that is being hidden overseas. This may lead to foreign seizure activities.

    • Example: Amanda is a U.S. citizen who was working with a few family members to move money offshore to avoid U.S. taxes. Amanda decides that she wants to get into compliance and submits to the voluntary disclosure program (VDP). During communications with the IRS, she informed them about foreign accounts that other U.S. persons were also using to hide assets and income. This may lead to foreign seizure activities.

    • Example: Alan is a U.S. citizen who was recently divorced and upset at his ex-spouse. He decides that he’s going to communicate with the IRS and Department of Justice and let them know about all the shady dealings that his ex-spouse was doing with her new boyfriend, including moving money to foreign accounts owned by her foreign non-us person family members abroad.

Mutual Collection Arrangement

• • • Example:  Brian is a lawful permanent resident who relocated back to Canada where he is a citizen. During an audit, the US learns that Brian has been illegally moving money offshore and hiding it in Canada. Since the United States entered into a Mutual Collection Procedure agreement with Canada, the IRS has a more streamlined method for seeking assistance with collecting the money that is owed to the IRS

    • Example: Brad is a U.S. citizen who recently relocated to France. He stopped filing US tax returns in the United States government filed substitute returns (SFR) for Brad. The IRS learns that brad is making a significant amount of money overseas. Since the U.S. has entered into a Mutual Collection Procedure agreement with France, the IRS has a more streamlined method for seeking assistance with collecting the money that is owed to the IRS

    • Example: Brent is a U.S. citizen who recently relocated to Sweden. Before leaving, Brent had a significant tax debt in the United States in the high 6-figures but failed to make any payments. Before the IRS could lien or levy any of Brent’s assets or income, he moved all of his assets offshore to Sweden where he currently resides. Since the U.S. has entered into a Mutual Collection Procedure agreement with Sweden, the IRS has a more streamlined method for seeking assistance with collecting the money that is owed to the IRS.

Fraud Criminal Activities

• • • Example: David is a U.S. citizen who was part of a team that stole cryptocurrency from legitimate sources. David transferred his cryptocurrency to a dark web launderer overseas to commingle funds and receive new ‘clean’ cryptocurrency to avoid detection. The IRS had issued a John Doe Summons against this cryptocurrency company and was able to locate David’s cryptocurrency and seize it even though it was in a foreign country.

    • Example: Dean is a U.S. citizen who fraudulently stole money from U.S. persons and then moved that money overseas into foreign accounts. Dean had used foreign financial institutions that he thought were safe, but the FFIs were recently investigated by the IRS and this particular FFI had agreed to cooperate with the U.S. government. Even though Dean had placed the money into anonymous corporations abroad, the U.S. was able to work with the FBI to seize the money and assets.

Flight Risk

• • • Example: Jennifer is a lawful permanent resident who was recently indicted for tax fraud. The IRS knows that Jennifer has many contacts overseas and they were also able to trace the money from the United States that she moved into foreign companies. The IRS may be able to work with the foreign government to freeze and seize the foreign assets.

    • Example: Jonathan is a lawful permanent resident who has multiple passports in several different countries. Jonathan is about to be indicted on several charges of evasion and money laundering and the U.S. government is concerned that Jonathan might hightail it out of the United States. During the investigation the U.S. government learned that Jonathan moved a significant amount of money offshore and the IRS was able to work with the foreign financial institutions to freeze the assets in anticipation of seizing at the time the indictment is issued.

Late-Filing Disclosure Options

Before a taxpayer has been contacted by the IRS, if the Taxpayer is out of compliance, there are various international offshore tax amnesty programs that they can apply to safely get into compliance. Depending on the specific facts and circumstances of the Taxpayers’ noncompliance, they can determine which program will work best for them.

*Below please find separate links to each program with extensive details about the reporting requirements and examples.

Streamlined Filing Compliance Procedures (SFCP, Non-Willful)

The Streamlined Filing Compliance Procedures is one of the most common programs used by Taxpayers who are non-willful and qualify for either the Streamlined Domestic Offshore Procedures or Streamlined Foreign Offshore Procedures.

Streamlined Domestic Offshore Procedures (SDOP, Non-Willful)

Taxpayers who are considered U.S. residents and file timely tax returns each year but fail to report foreign income and/or assets may consider the Streamlined Domestic Offshore Procedures.

Streamlined Foreign Offshore Procedures (SFOP, Non-Willful)

Taxpayers who are foreign residents may consider the Streamlined Foreign Offshore Procedures which is typically the preferred program of the two streamlined procedures. That is because under this program Taxpayers can file original returns and the 5% title 26 miscellaneous offshore penalty is waived.

Delinquent FBAR Submission Procedures (DFSP, Non-Willful/Reasonable Cause)

Taxpayers who only missed the FBAR reporting and do not have any unreported income or other international information reporting forms to file may consider the Delinquent FBAR Submission Procedures — which may include a penalty waiver.

Delinquent International Information Returns Submission Procedures (DIIRSP, Reasonable Cause)

Taxpayers who have undisclosed foreign accounts and assets beyond just the FBAR — but have no unreported income — may consider the Delinquent International Information Return Submission Procedures. Before November 2020, the IRS was more inclined to issue a penalty waiver, but since then this type of delinquency procedure submission has morphed into a reasonable cause request to waive or abate penalties.

IRS Voluntary Disclosure Procedures (VDP, Willful)

For Taxpayers who are considered willful, the IRS offers a separate program referred to as the IRS Voluntary Disclosure Program (VDP). This program is used by Taxpayers to disclose both unreported domestic and offshore assets and income (before 2018, there was a separate program that only dealt with offshore assets (OVDP), but that program merged back into the traditional voluntary disclosure program (VDP).

Quiet Disclosure

Quiet disclosure is when a Taxpayer submits information to the IRS regarding the undisclosed foreign accounts, assets, and income but they do not go through one of the approved offshore disclosure programs. This is illegal and the IRS has indicated they have every intention of investigating Taxpayers who they discover intentionally sought to file delinquent forms to avoid the penalty instead of submitting to one of the approved methods identified above.

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and/or other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist Taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Current Year vs. Prior Year Non-Compliance

Once a Taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, Taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. 

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for Taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting.

*This resource may help Taxpayers seeking to hire offshore tax counsel: How to Hire an Offshore Disclosure Lawyer.

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure. 

Contact our firm today for assistance.