Expat Tax Debt Mistakes

As an expat, the IRS has tremendous leverage over you. If you owe more than $50,000, the U.S. government can revoke your passport. You also have the risk of an error on your foreign bank account reports or foreign asset statements. The penalties for an error can be quite severe, so you can’t afford to run afoul of the Service.

When you have a tax debt, the IRS already has the advantage.  Don’t make things worse while negotiating and give them more leverage.  You need to be aggressive and push back against the great collector.  

Here are six tax debt mistakes commonly made by U.S. expats.

1. Don’t put up with an unreasonable or incompetent revenue officer.

Battling with the IRS is stressful enough. When the RO won’t see reason, or has no idea what he’s doing, dump him.  You can always escalate the issue and settle your tax debt with his manager or appeals.

So, if you think you are being mistreated, or he’s just a rude jerk, don’t let him push you around.  Don’t be victimized by an unreasonable tax collector.  Ask to speak with his manager.  Discuss with her your concerns and mention that you are thinking of filing a formal complaint.

You’ll be surprised how this little push will get the RO in line.  If he sees you’re not someone who will just grab your ankles and take it, he’s likely to be more reasonable.

If the first call with the manager doesn’t resolve the matter, give it two meetings and demand another conference.  At this one, request a new agent be assigned to your case.  If you have a reasonable basis for the request (not just to delay), it will be granted.

Another trick is to ask to meet with the regional manager (the agent’s boss’s boss).  Escalate things past the first level and you will get results.  In my experience, managers often attract people like themselves to their 5 or 6 person team.  If an RO is a jerk, it is likely his manager is cut from the same cloth.  But, you can get past the manager by demanding a conference with the regional manager.

I’ve seen this taken so far as to demand the group manager and manager attend any audit meetings.  This usually means the top person is driving from afar, and will really get the RO’s attention.  If you take it this far, you’d better be in the right.

If you disagree with the manager’s decision, and the filing deadlines haven’t passed, you can appeal liens, levies and seizures under the Collection Appeal Program.  You can also request a CDP hearing with Appeals after a tax lien is filed or after a final levy notice is sent.  Both of these are great ways to dump the RO and resolve your tax debt with someone more professional.

Finally, if none of these methods resolve your issue, you can contact the Taxpayer Advocate Service for assistance.  The TP Advocate will be on your side and will work with you to move through the IRS system – and help you escalate the matter if necessary.  If your complaint is valid, the TP Advocate will be a valuable resource.  If you are just trying to drag things out, they will ignore you.

While ROs must be tough to be effective, they must also follow all kinds of procedural rules.  When they’re meeting with you, rather than an experienced representative, they often cut corners and resort to threats or levies.  Remember, you always have the right to escalate the matter and EVERYONE in the IRS has a boss.

2. You must know where you are in the process.

Keep track of all IRS deadlines and appeals dates. Open IRS correspondence and read your account transcript or record of account.  You have many rights and tools to help you resolve your tax debt, but they’re time sensitive.  Miss a deadline and you lose your rights.

If you don’t know what to expect, you are sure to be blindsided.  An RO will not volunteer information, so you must search it out on your own.  If the time for a bank levy is near, the IRS person will remain quiet and then slam your account without warning.  Only someone who understands the timeline will know how and when to protect against acts of aggression.

Tip: Get all statements from the RO in writing.  Yes, they will lie about appeal dates and levies.

3. Never admit to a crime!!!

If an agent attempts to get you to admit to a crime, such as not reporting an offshore account, hang up or kick him out of your office. I can’t stress this enough:  No matter what you think of the RO, he or she is not your friend!  If they can get you to admit to a crime, the next time you see them will be on the witness stand at your trial.  Don’t be cute and try to talk your way out of it.

And this goes double if someone from the IRS Criminal Investigation Division (IRS CID) or a Special Agent contacts you.  Don’t speak with them under any circumstances and make a beeline for the nearest criminal tax defense attorney.

How can you be sure it is a criminal matter:  If they show you a badge, have a gun, or recite your Fifth Amendment rights, you are in deep trouble.

4. Never ignore the IRS.

I know this is the most difficult rule to follow, but don’t’ bury your head in the sand. The IRS RO is happy for the various statutes and rights of appeal to pass without action, so he can have a free run at you and your assets.  Whenever the IRS is quiet, don’t assume they’ve forgotten about you.  More than likely, they are waiting on something and will come down on you like a ton of bricks when the deadline passes.

If you get a letter asking for a call, phone them.  If they visit you at your office, talk to them or tell them to contact your representative.  Though, you should never volunteer any information… just give them a reasonable amount of cooperation.

Of course, I am not saying you must do whatever they ask.  For example, if you’re not comfortable meeting at your office, tell them to get lost and schedule an appointment at theirs.  Remember, it takes a great deal of preparation and planning to resolve a large tax debt.  If you are not ready, you can put them off.  Just be sure to get your financial house in order immediately.

Of course, this rule assumes you’re battling with the great collector without the benefit of counsel.  If you have retained an attorney, NEVER speak to the IRS.  If they come to your home or office, give them your lawyer’s card and thank them for visiting.

5. Pay your taxes if you can afford to do so.

Note that I said, if YOU can afford to pay the IRS, you should do so. The IRS will constantly pressure you to sell your assets or borrow against them to feed the beast.  Considering interest and penalties, it’s usually a good financial decision to pay the IRS first, before other creditors.

If YOU can’t afford to pay, don’t let the RO pressure you into borrowing from a spouse, credit card, or family member.  You are not required to go into debt to settle with the IRS.  They will ask you to borrow from your parents or spouse, but they can’t force you to do so.  They also can’t refuse an installment agreement because you have wealthy family members who can pay your bills.

The only assets at risk are those you own.  If you don’t have the income or assets with which to pay, don’t sweat it.  Just ask for an installment agreement.  If the RO is rude, see rule 1 and request a conference with his manager.

This holds true for partial payments.  The IRS RO will often ask you to pay something and then negotiate an installment agreement.  Never pay any money unless you know how all of your tax debt will be satisfied.  Don’t give them cash with the hope of building favor.  Demand an installment agreement before giving the collector one dollar.

For example, when your tax debt covers many years, the IRS agent might ask you pay one year (the oldest one) before setting up an installment agreement.  Even if you can afford to pay, this is usually not a good idea.

The reason he is asking you to do this is that the penalties have maxed out on the older year and the 10 year collection statute might be on the horizon.  It’s probably in your best interest to pay current year taxes, estimated taxes for next year, and then the most recent tax debt.  Only after this should you pay past debts.

This is all to say, don’t get scammed into paying before you know how the entire tax debt will be resolved.  It is almost never in your best interest to pay and then negotiate.

6. Don’t extend the 10 year collection statute.

Unless your tax attorney or CPA tells you to extend, it’s almost never a good idea to give them more time.

Tip: The IRS has 10 years from the date of assessment (usually when you file the return) to collect your delinquent taxes.  When the 10 years are up, you can often walk away with a fresh start.

If the 10 year collection period is near, don’t do anything that will extend it.  This includes:

1. Installment Agreement with Form 900 Waiver
2. Filing an Offer in Compromise
3. Bankruptcy
4. Collection Due Process Appeal
5. Taxpayer Assistance Order
6. Absence from the Country
7. IRS Judgment or Litigation
8. Relief from Joint and Several Liability / Innocent Spouse Request
9. Military Deferment
10. Wrongful Levy Claim
11. Wrongful Lien Claim
12. Estate Tax Lien

Don’t want to try to remember all of these?  The most common are the Offer in Compromise, Bankruptcy and filing a CDP hearing request.  Basically, any time the IRS is prohibited by law from collecting, the 10 year statute is on hold.

I hope this article on Expat Tax Debt mistakes has been helpful.  Remember that the key to going into battle with the IRS is understanding your rights and the timelines for the various filings.  If you miss these deadlines, you have significantly weakened your position.  Always try to take the high ground before talking with an IRS agent.

If you’re going through an audit, we will be happy to refer an expat tax expert. You can reach us HERE.

Guide to Foreign Tax Credit, Foreign Tax Treaties and Foreign Housing Exclusion

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