Your IRS risks are those assets and income sources the U.S. government can levy, often before you can complete an installment agreement or Offer in Compromise. Understanding your IRS risks is the key to finding and shoring up your weaknesses before contacting the great collector.
First, you should know that the IRS can levy your U.S. bank accounts, some foreign bank accounts, and seize any real estate or assets in America or held in certain “friendly” nations. These are all IRS risks.
* Levy: An IRS tax levy is an administrative action by the IRS that does not require them to go into court or make any showing of proof before they empty your bank accounts and take any other assets up to the amount they claim you owe. Basically, the person assigned to your case can enter a few keystrokes in to his computer and send a notice to your bank depending on the cash therein.
* Lien: An IRS tax lien is a lien filed by the IRS against real estate or other property to secure the payment of taxes. It can allow the IRS to seize the property and puts them behind any existing creditors.
So, if you attempt to sell a property with an IRS tax lien, the government will get paid before you see any money. However, if you have a first and second mortgage on the property before the IRS get to it, they only receive what’s left after those preexisting creditors get theirs.
Here are some other IRS risks:
* The IRS can levy your foreign bank account if that bank has a branch in the U.S.
* The IRS can levy your paycheck, leaving you only a few hundred dollars each month to survive on.
* The IRS can seize any real estate in your name.
* The IRS can seize ANY bank account you are a signatory on. Even in you are a signor on your parents account only for estate planning or emergency purposes, the government can drain that account to satisfy your tax debt. So, anyone that allows you access to their account has an IRS risk.
* Foreign transactions come with their own IRS risks. For example, moving money offshore to defeat the IRS can become a crime.
* The refusal to pay a tax when you can afford to pay can become a crime. In this case, your IRS risk is that they want to make an example out of you.
When do IRS Risks Begin?
After you file a tax return with a balance due or an audit is completed and all appeals and tax court filings are exhausted (or not utilized), your IRS tax debt becomes final and payable. At this point, the Service will attempt to contact you by sending four letters requesting and then demanding payment. The fourth and final letter, called a CP-504, is usually sent by certified mail. Thirty days after it is sent, the IRS can begin collection actions. Your IRS risks of levy and lien begin at this point.
Note that I said they send four letters, not that you received four letters. The IRS is only obligated to mail correspondence to your last know address. If you have failed to keep them updated on your location, that’s your issue. Their only requirement is to send out the forms, not to make any real effort to find or contact you before levying your ban k account.
IRS Risks in Foreign Countries
The IRS can levy any bank account abroad if that bank has a branch in the U.S. This means that your cash at HSBC in Hong Kong is at risk just as it is in HSBC New York.
To levy a foreign bank account, the IRS issues a levy notice to the U.S. branch of your bank, which they are required to forward on to the foreign office. The offshore bank then wires all of your money, up to the amount of the tax debt, including interest and penalties, to the IRS.
Of course, the solution to this is simple: never hold an account at a foreign bank that has a branch in the United States. This is easy to do, so long as you understand your IRS risks and plan ahead.
You also have IRS risks if you have real estate in the United States (obviously), Canada, France, and the U.K. I have seen many properties in these countries seized and sold at auction with no court action or significant effort required on the part of the IRS.
Finally, the IRS can levy your paycheck if your employer is based in any country that has a Mutual Collection Assistance Request agreement with the U.S. IRS. These include Canada, France, Denmark, Sweden, Netherlands and the U.K. Anyone living and working in these countries, or working offshore for a company based in these nations has IRS risks of levy and seizure of assets.
I hope you have found this post helpful. Understanding your IRS risks is an important component in planning your IRS tax debt relief strategy.