A report released by the Treasury Inspector General for Tax Administration, a bureau charged with the oversight of the Internal Revenue Service, suggests the IRS needs to do more to collect delinquent taxes from international taxpayers. The TIGTA study focused on collections from individuals and small businesses based abroad.
The report found that ineffective management oversight as well as the IRS' inability to determine the best cases to pursue have greatly contributed to weaknesses in its collection program.
One method the IRS has developed for collecting delinquent taxes from Americans living abroad is called Customs Hold. Under this process the IRS requests that the name of a delinquent taxpayer be entered on a list maintained by the Department of Homeland Security. Customs officials are then able to stop those individuals upon entry to the U.S. and request contact information, thus giving the IRS the ability to make an attempt at collecting the taxes owed.
The TIGTA report indicated the IRS has yet to gauge the effectiveness of the Customs Hold program as an enforcement tool. The current list contains about 1,700 names, which includes both residents and nonresident U.S. taxpayers, according to the report. International taxpayers owe about $1.1 billion of the total $1.7 billion in delinquent tax payments associated with people on the list.
There are 7.8 million U.S. citizens living abroad, according to the U.S. State Department. That number does not include green-card holders who owe U.S. taxes. Unlike other developed nations, U.S. citizens' income is taxed no matter where it is earned.
The IRS responded to the TIGTA report by saying that more than 45,000 taxpayers have voluntarily come into compliance as a result of its widely-publicized offshore limited-amnesty programs over the past 5 years, paying an estimated $6.5 billion in taxes, penalties and interest.
The IRS also noted it had plans to realign collection-related operations within the agency's Small Business and Self-Employed Division, as well plans to revise guidance and make personnel changes.
Source: Saunders, Laura, "IRS Faulted on Tax Collection From Expats," The Wall Street Journal, October 1st, 2014