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United States—IRS private debt collection program will exclude overseas taxpayers

Published on: Jun 13, 2017

This publication was released by our Global firm.

Overview

In December 2015 the President signed into law the Fixing America’s Surface Transportation Act (the “Act”); although the Act was primarily a highway bill to fund repairs and infrastructure, it contained several important revenue provisions impacting US taxpayers. One such provision authorized the IRS to begin collection of certain overdue federal tax debts through private debt collection agencies. The Act allows these designated agencies to work on behalf of the IRS. The IRS is expected to begin notifying taxpayers this summer if their debts have been assigned to a private collection agency.

On May 10, 2017 Bloomberg BNA reported that the IRS informed them that these debt collectors were only licensed to operate in the US and would exclude from the program any taxpayers living overseas.  The IRS spokesperson emphasized that overseas taxpayers should ensure that the IRS has their correct foreign address on record to be properly excluded from the program. The comments from the IRS were in response to a letter received May 5, 2017 from the group American Citizens Abroad, a non-profit group that regularly advocates for the rights of overseas taxpayers.

Additional background

Notably, the Act also allowed for the revocation of US passports for individuals with outstanding US tax debt in excess of $50,000. Refer to the previous alert sent in December 2015 on this topic. This rule remains in place and continues to apply to overseas taxpayers.

Vigilance against scams

With the start of the private debt collection program, the IRS is reminding taxpayers on its website to stay vigilant against scams, which may take the form of unexpected phone calls. The IRS will always send several collection notices through the mail before making phone calls. In addition, the IRS will not threaten taxpayers with imprisonment or lawsuits, ask for credit or debit card numbers over the phone, or request payment via prepaid debit cards or gift cards. Read more on the IRS website about how to know if it’s really the IRS calling.

Deloitte’s view

Although many overseas taxpayers may not have been aware of the forthcoming debt collection efforts by the IRS, it is a welcome relief that they will be excluded from the program.

However, many taxpayers residing overseas continue to use a US address on their federal tax return for ease of receiving mail from the IRS. Foreign addresses are often incompatible with IRS system limitations in the number of characters permitted to be listed with an address. Because the IRS is using taxpayer addresses as the determining factor in which taxpayers will be included in the private debt collection program, overseas taxpayers may inadvertently be included by virtue of listing a US address on their tax return.

In addition, although overseas taxpayers will not be subject to private debt collection efforts, they still risk revocation of their US passport if they have outstanding US tax debt in excess of $50,000. It continues to remain critical for US citizens living overseas to stay current on their tax liabilities.

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