What is a Foreign Mutual Collection Assistance Request (MCAR)

Mutual Collection Assistance Request (MCAR)

Foreign Mutual Collection Assistance Request

When a foreign government wants to collect taxes against one of its own — and the foreign government believes that the taxpayer may have assets in the United States — the foreign government may make a Mutual Collection Assistance Request (MCAR) to the U.S. government to assist with collecting against the taxpayer. When the United States enters into an international tax treaty with a foreign country, there is a spirit of cooperation between the two countries with specific verbiage contained in the treaty which provides that the jurisdiction will assist the other jurisdiction and collection activities.  Some treaties go even further and provide for MCAR procedures. This is what occurred In the recent case of Ryckman, in which the Canadian Revenue Agency (CRA) made a Mutual Collection Assistance Request to the United States because the petitioner owed approximately $200,000 to CRA for tax years involving 1993 and 1994 (MCAR was issued in 2017). Let’s look at how the process works by reviewing the summary provided in the Internal Revenue Manual and the U.S. Tax Court’s ruling.

Overview of the Mutual Collection Assistance Requests (MCAR) Process

1. 4. 1. “The United States has six bilateral tax treaties that contain broad provisions for mutual assistance in collection.

         1. Note: Many U.S. tax treaties contain separate collection assistance provisions intended to prevent improper use of the treaties. These limited collection assistance provisions focus on exemptions or reduced rates of tax granted under the treaty.

      2. MCAR is used to combat international tax avoidance and evasion by providing a procedure for collecting taxes on behalf of a treaty partner. MCAR provisions create a mutual obligation for each contracting country to use its domestic collection procedures to collect the taxes of a treaty partner upon request.

      3. There are currently six bilateral income tax treaties that provide for MCAR. These treaties are with the following countries and cover the following taxes:

         • • Canada – All taxes including both individual and business

           • Denmark – Income taxes and other specified taxes

           • France – Income taxes and other specified taxes

           • Japan – Income taxes and other specified taxes

           • The Netherlands – Income taxes and other specified taxes

           • Sweden – Income taxes and other specified taxes

      4. The MCAR program is administered by the USCA, which is part of LB&I, with assistance provided by Small Business & Self Employed (SB/SE) Field Collection Area Operations.

      5. The USCA is the coordinating authority with the foreign government. All inbound MCARs are received and processed through the USCA . All communications with a treaty partner must be transmitted through the USCA..

      6. SB/SE International Field Collections, which is part of SB/SE Northwest Field Collection, assists the USCA. in carrying out all the collection activities for MCAR Designated Revenue Officer(s) in SB/SE. SB/SE International Field Collections, as the MCAR coordinator, processes and assigns inbound mutual collection assistance requests.”

Inbound Mutual Collection Assistance Request

1. 1. 1. “Each of the countries listed in IRM 5.21.7.4(3) may request assistance from the United States in collecting taxes owed to it. Such requests are called “Inbound MCARs.” All inbound MCARs are sent to the USCA who is the only IRS official authorized to receive such request. When approved, the USCA will forward such inbound MCARs to SBSE for collection action.

      2. The Service will not pursue collection on behalf of the treaty partner if the individual subject to collection is a citizen of the United States.

         1. • Exception: For cases received from Japan, this citizenship limitation does not apply to individuals who filed a fraudulent tax return or a fraudulent claim for refund, willfully failed to file to evade taxes, or transferred assets to U.S. to avoid collection.

            • Exception: For MCAR cases received from Canada and Denmark, this limitation applies to inbound MCARs relating to taxable periods during which the individual was a U.S. citizen.

      3. MCARs are sent by the treaty country to USCA. Only the USCA is authorized to receive such requests. MCARs come in the form of a written request. All MCARs must include a statement to the effect that the tax has been “finally determined,” as required by each treaty. The USCA forwards inbound MCARs to SBSE for collection action.”

What is Contained in the MCAR?

An MCAR contains the following information:

1. 1. 1. “Name

      2. Address

      3. Type of tax and tax period(s)

      4. Amount(s) due in the currency of the treaty partner

      5. Date of Foreign Collection Deadline (FCD)

• • • • Note: The FCD for each MCAR is provided by the treaty partner. The statute date is shown on the Foreign Tax Liability Certificates. No action is required by the Service to protect MCAR collection statutes.

      • Note: If the FCD is set to pass within 12 months, the MCAR coordinator should request an updated FCD from the USCA. If the FCD has not been updated within 90 days after the request, the MCAR coordinator should follow-up with the USCA. If the FCD has passed, keep the case open and follow-up with the USCA to determine whether the treaty partner has extended the FCD prior to the expiration date.”

An MCAR May Leave the U.S. Taxpayer with Limited Rights 

U.S. Taxpayers who are subject to an MCAR may have limited rights to challenge the tax liability. As provided in the case of Ryckman, the Taxpayer was not entitled to a Collection Due Process Hearing:

• • • “What we must decide is whether the IRS was subject to any obligations imposed by the CDP statutes when it denied Ms. Ryckman’s CDP hearing request. To answer this question, we begin with the statutory text. Pursuant to section 6320(a)(1), the provisions of section 6320 apply only to a “person described in section 6321,” viz, a person “liable to pay any tax [who] neglects or refuses to pay the same after demand.” Meanwhile, although section 6330(a)(1) does not specifically cross-reference section 6331 (which generally authorizes the IRS to collect an unpaid “tax” by levy), section 6330(a)(3)(A) provides that the levy notice sent to the taxpayer must include “the amount of unpaid tax.” Therefore, we hold that the rights afforded by the CDP statutes apply only to those people subject to IRS actions to collect “tax.”

    • Because Ms. Ryckman had no additional administrative or judicial rights in the United States under the CDP statutes with respect to the NFTL, neither statute imposed any obligations on the IRS in its treatment of her hearing request. Therefore, the IRS’s denial letter foreclosing Ms. Ryckman’s CDP hearing request was not a determination letter subject to judicial review under section 6330(d)(1), and we are without jurisdiction to consider Ms. Ryckman’s Petition.”

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and 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.