US citizens and tax residents usually want to know if there exists a bank or an account that the IRS will not be able to reach to seize the assets in case of a claim. The matter is that the first thing the IRS would do is to freeze your accounts if any suspicion of tax evasion arises. As a result, your business matters may come to a complete halt, and you will have no money whatsoever to pay your tax debts or hire a legal representative to settle the matter in court. Almost any kind of asset may be seized, from real estate to bank deposits, except for alimony and a few other assets. If you are interested in safekeeping your assets, read our article to learn about bank account options that remain beyond the reach of the IRS.
Who Reports to the IRS?
The IRS, or the Internal Revenue Service, is the US tax authority that will reach anyone anywhere on Earth if this person owes taxes to Uncle Sam. It has its tentacles anywhere if the assets of potential tax evaders are kept there. There are 11 attaché offices located in foreign countries that the IRS will use to train government partners to investigate tax crimes and actually deal with all financial crimes related to it.
If you are a US citizen, you are liable for taxes to the IRS even if you have lived abroad all your life! Any income you earn in other countries is taxed by the USA (except for the first 100,000 US dollars you earn). The amount of payable taxes can be reduced if the respective country is a party to a Double Taxation Treaty with the USA, but there are only some countries that have signed this kind of treaty.
What happens if the individual fails to file a tax return or pay taxes on time? Well, penalties and fines will be imposed, and assets can be seized in many cases. If the amount of your tax debt exceeds 50,000 US dollars, your US passport may be canceled.
Reasons for Freezing of Bank Accounts
Despite numerous horror stories you may hear, the IRS does not immediately seize all your property. It follows the process below:
- The IRS has suspicions that a person has not paid the required amount of taxes in full.
- It sends a Notice for Demand for Payment and requests full payment by a certain date. The IRS sends several notices in most cases, and it will simultaneously start accruing fines and penalties for failure to pay on time.
- The respective person has a certain period of time to pay the debt or get in touch with IRS representatives to discuss a payment plan or dispute the assessment. There are a lot of good methods they can apply to help you pay the debt before they use the “bad” ones. You will have enough time to seek professional advice.
- If the taxes remain unpaid and the person fails to reach the IRS, he/she is considered to have declined the request.
- This brings the IRS to the final step: a Final Notice of Intent to Levy is sent, and the person is given 30 days for negotiations. If nothing is done during this period, the IRS will start the confiscation process.
Assets That Can Be Seized
Any assets located in the USA can be seized by the IRS, including income, property, real estate, or bank accounts. Those held in other countries are usually not seized.
In addition, a special law called FATCA (Foreign Account Tax Compliance Act) imposes an obligation on foreign banks to provide information about the accounts of US citizens opened there. If a person is suspected of any fraud or tax evasion, the bank account gets frozen before he or she is given a chance to talk to the IRS. Income from real estate, dividends, and even profit from jointly owned assets can be seized in addition to the money in current accounts.
According to statistics, such assets as cryptocurrencies, boats, vehicles, or objects of art (and the like) are confiscated not so often as it will mean more work for IRS agents. They mainly pay attention to bank/brokerage accounts or any other financial assets as these can be frozen by a simple mouse click: they do not need to take any legal action, and the burden of proof rests with the taxpayer.
What Property Will Not Be Touched by the IRS?
You may have a stereotype that a person is left with nothing if the IRS agents arrive for confiscation. However, this is not true as there is a long list of items that cannot be seized! Let’s take a look at them:
- Household pets, fuel, furniture, food, and weapons for personal use with a value of no more than 6,250 US dollars
- Shoes, clothing, and school textbooks used by the taxpayer or his/her family members
- Tools and books necessary to carry out the taxpayer’s business whose cost does not exceed 3,125 US dollars
- Some pension payments and annuities
- Unemployment benefits
- Court-ordered income used to support minor children
- Government assistance
- Certain disability payments
- Residential property (even if there are small debts) depending on the state
As you see, there are no bank accounts on the list.
Tax Evasion or Asset Protection?
You will not be protected against tax evasion accusations by opening an account with a bank abroad, but a foreign account is not easy prey for the IRS. No laws forbid American citizens to have foreign bank accounts, so arbitrary asset seizure by the IRS may be prevented by opening an offshore bank account in your name. This is a simple instrument that can give you time and leverage if a dispute with the IRS occurs.
However, if we are talking about more complex asset protection, you will need a more sophisticated structure than a bank account. You can open several bank accounts in different countries using different structures, such as foundations, LLCs, or trusts.
You can click on the above link to see the types of income that cannot be confiscated by the IRS. However, it is important to avoid having problems with the IRS – or at least have a reliable structure to protect you in case of trouble.
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