IRS COLLECTION ACTIVITIES AGAINST OVERSEAS ASSETS

The IRS Chief Counsel's Office has issued a Program Manager Technical Advice regarding questions about IRS activity to collect tax delinquencies from assets located outside of the U.S. While some of the Advice is fairly technical, it does provide some interesting information on what the IRS can and cannot do in this arena and some of the approaches they will take.

Some of the collection avenues the IRS may take include:

• The input of a Treasury Enforcement Communications System (TECS) Lookout Indicator. This is a mechanism to help locate a taxpayer's location.
• Initiation of an outbound Mutual Collection Assistance Request (MCAR) to a treaty partner.
• Levy on a domestic branch of a foreign bank 
• Bringing a lawsuit to repatriate assets.
• Issuance of Letter 6152, Notice of Intent to Request U.S. Department of State to Revoke Your Passport.
• Referral to U.S. Dept. of State (DOS) for passport revocation after Letter 6152 issuance.

The IRS can proceed along multiple lines at the same time, except the final item above can commence only after Letter 6152 is sent. The Advice notes that if lien or levy action has already occurred to collect a seriously delinquent tax debt under the passport revocation procedures, the IRS does not have to undertake further collection action after issuing a Letter 6152 before referring the matter to the DOS for passport revocation.

The IRS may use FATCA data from taxpayer filings to assist in locating foreign assets, but with some limitations on FATCA data obtained under a treaty.

The Advice also discusses the ability of a taxpayer to obtain information on these collection processes in discovery in a federal lawsuit or in a Freedom of Information Act (FOIA) request, and what objections to disclosure can be made by the IRS to such disclosure attempts.

Program Manager Technical Advice 2022-006

 

New Retirement Plan Distribution Rules Likely on the Way

Several years ago, the SECURE Act was passed, which had major changes to the tax rules relating to retirement plan distributions. Another act on that subject is working through Congress - the Enhancing American Retirement Now (EARN) Act. A version has passed the House of Representatives, with the Senate working on its own version. Given the almost unanimous passage by the House, there is a very good chance that the Act will make its way into law.

We cannot tell what all the provisions will be, but here is a list of items that are in one or both of the House and Senate bills and thus have a reasonably good chance of being in the final version:

• extending the date on which the required beginning date is based, from the year in which the employee or IRA owner reaches age 72 to the year in which he or she reaches age 75, effective after 2031
• allowing up to $2,000 per year of 401(k) assets to be used for long-term care insurance
• reducing the  Code Sec. 4974 50% excise tax on the failure to take a required minimum distribution to 25% and reducing it to 10% for an individual who, during a correction window, corrects the shortfall and submits a return reflecting the tax
• indexing for inflation the $100,000 limitation on qualified charitable distributions from an IRA and permitting a one-time election to treat up to $50,000 in distributions (also indexed for inflation) from an IRA to a charitable remainder trust or charitable gift annuity as if they were made directly to a qualifying charity
• excluding from the additional 10% tax on early distributions under Code Sec. 72(t), distributions made to a terminally ill individual; 
• excluding from the additional 10% tax on early distributions under Code Sec. 72(t), distributions of up to $1,000 per year to meet expenses relating to personal or family emergencies
• excluding from the 10% additional tax on early distributions under Code Sec. 72(t), eligible distributions of up to $10,000 (or, if less, 50% of the account balance) for distributions to domestic abuse victims

Time Period to File Estate Tax Return to Make Portability Election Extended to 5 Years

If a spouse dies and his/her estate does not fully use the decedent's remaining unified credit, the surviving spouse can use the unused credit if certain conditions are met. One of the conditions is that an estate tax return is filed for the decedent that makes a portability election, even if no estate tax return is otherwise needed.

An estate tax return is due 9 months after death, with an automatic extension granted for 6 months if timely requested. When no return is required, a return being made solely to make a portability election can be filed late, up to two years after death of the first spouse, if the extension procedures of Rev.Proc. 2017-34 are followed (generally, filing a return within that time period while adding a specified legend to the top of the return).  

This two year period has now been extended to 5 years. This was principally due to the IRS receiving too many Form 9100 requests (requiring a private letter ruling) after the two year period but often within 5 years. To save IRS resources, the extension period is now 5 years.

Note that if it turns out that an estate tax return was otherwise required, the extension is null and void.

Rev.Proc. 2022-32