Whether someone has foreign property or is intentionally using foreign investments as tax shelters, both may be asking the same question: Can the Internal Revenue Service (IRS) put a lien on foreign assets? The IRS Office of the Chief Counsel recently addressed this question, and the short answer is: Yes.
The IRS can and will put a lien on a taxpayer's property abroad.
Tax Liability Extends Beyond the US Border
Tax liability can be determined by a property owner's citizenship, place of residence, or the property's location. So, if an American citizen (a person or an entity) holds property outside of the United States (or—on the flip side—a foreign resident or entity has property within the States), their foreign property can be taxed.
Thus, when it comes to IRS' collection efforts, the IRS sees no difference between domestic- and internationally held property. The issue is not really if the IRS can place a lien. It's how the agency can do it.
The How and the When
According to the IRS's position, the IRS can simultaneously pursue both domestic and international assets. The agency doesn't have to try and fail at getting US-based assets before turning its attention to the assets located abroad.
If the US is pursuing assets in another country, the IRS needs that nation to have signed a treaty that ensures both nations will support each other's collection efforts.
Relatedly, the IRS has said that—as long as it follows the required procedures—it believes it has the right to levy a taxpayer's foreign assets held by a foreign bank when that bank has a US-based branch.
Liens versus Levies….
While there doesn't seem to be a limit on the IRS' ability to levy assets, it may be a different story once the IRS attempts to seize that property. In that case, the IRS's position is that it should have already exhausted its efforts to collect the debt from the domestic assets, or the IRS is concerned that the assets could be lost if it were to wait.
Whether it's located in the US or abroad, if you have a property with a lien, or have other issues relating to tax debts, consult with a tax attorney as soon as possible. If you need help, call Senior Partner, Tax Controversy Attorney, and former IRS attorney Brandon A. Keim at (602) 200-7399 or contact him online to discuss your options.