Since 2009, international tax compliance and collection has been a major concern for the Internal Revenue Service (IRS). The Treasury Inspector General for Tax Administration (TIGTA) released a report on September 12, 2014 concluding that the IRS should increase and enhance its efforts in the international collection of U.S. taxes, especially for U.S. taxpayers residing in foreign countries. Of particular note is the report’s discussion of the Customs Hold enforcement procedure as being one of the most effective in the IRS international collection arsenal.
TIGTA recommended in its report that the IRS:
1) Develop a formal International Collection Strategic plan;
2) Update International Collection guidance to provide specific policies and procedures to international revenue officers;
3) Evaluate and update the current international revenue officer position descriptions;
4) Develop a formal International Collection training plan using Subject Matter Experts to develop and teach international specific courses;
5) Evaluate the International Collection inventory selection criteria;
6) Develop separate performance measures and track specific enforcement results for International Collection; and
7) Continue to pursue direct access to the Customs Hold information.
Customs Hold Information
International revenue officers may request that a “Customs Hold” be input into the Treasury Enforcement Communication System (“TECS”) for taxpayers living abroad that have delinquent taxes outstanding. Once the taxpayer is on the TECS, the U.S. Department of Homeland Security notifies the IRS whenever the taxpayer travels into the United States. These revenue officers use information obtained through a Customs Hold to attempt to contact the taxpayers while they are in the United States and/or locate the taxpayers’ assets.
According to the report, the TECS is a database maintained by the DHS and is used extensively by the law enforcement community. Taxpayers are informed by letter that an international revenue officer has taken action to advise the DHS that the taxpayer has outstanding tax liabilities and that this may result in an interview by a Customs and Border Protection Officer if the taxpayer attempts to enter the United States.
There is a Memorandum of Understanding between the IRS and the DHS that allows Customs and Border Protection Officers to stop delinquent taxpayers identified on the TECS to collect their contact information of where they will be staying while in the United States. The TECS currently includes approximately 1,700 taxpayers with approximately $1.1 billion in delinquent taxes owed by taxpayers living abroad. The IRS does not keep a record of the actual taxes collected as a result of the use of a Customs Hold, although during interviews with international revenue officers, many identified the Customs Hold as one of the most effective enforcement tools available.
The IRS officials agreed with all of TIGTA’s recommendations and plan to take corrective actions. As a result, it can be expected that in the near future there will be increased tax collection enforcement of US taxpayers living abroad through more expansive use of the “Customs Hold” procedure.