Taxpayers residing outside U.S. questioned at U.S. border regarding back taxes

Taxpayers traveling to the United States with unpaid U.S. tax assessments can be detained at the border, questioned, and flagged for follow-up enforcement. If a taxpayer has an unpaid tax liability and is subject to a resulting Notice of Federal Tax Lien, the IRS may submit identifying taxpayer information to the Treasury Enforcement Communications System (TECS), a database maintained by the Department of Homeland Security (DHS).

The database allows the DHS to identify taxpayers with unpaid tax assessments who are traveling to the United States (Internal Revenue Manual (IRM), §5.1.12.26). 

U.S. or non-U.S. persons with an unpaid federal tax liability whom the IRS has been unable to contact may be unaware of the tax debt until they come through U.S. Customs and are detained by Immigration and Customs Enforcement (ICE). ICE agents may ask them what assets they have in the United States, the purpose and duration of their trip, where they are staying, vehicle registration information, and similar information. The agents also may inquire about a taxpayer’s employment relationships in the United States or any personal services performed in the United States, to establish wage garnishment opportunities. Thereafter, ICE agents alert an IRS coordinator and transmit this information through a referral program. Typically, an investigation request is sent to an IRS agent in the region in which the taxpayer is traveling to follow up with the taxpayer. 

To be entered into TECS, the taxpayer must live outside the United States and its commonwealths or territories (or “is about to depart to reside in a foreign country” or “travels outside the United States … on a frequent basis and [IRS agents] have not been able to contact the taxpayer”) and be subject to a filed Notice of Federal Tax Lien (IRM, §5.1.12.26.5.1). 

The IRS may file a federal tax lien on a taxpayer’s real or personal property under Sec. 6321 when the taxpayer fails to pay taxes allegedly owed after the notice-and-demand period expires. A properly filed federal tax lien publicly alerts creditors that the IRS has a priority claim against the taxpayer’s real or personal property. If the IRS files a federal tax lien in the wrong location, it will not have priority over a later purchaser, holder of a security interest, mechanic’s lien, or judgment lien creditor. 

A federal tax lien is filed in the office designated by the state where any real property owned by the taxpayer is located (Sec. 6323(f)) and is a public record. For personal property, the federal tax lien ordinarily is filed in the county in which the taxpayer resides or in any other office designated by state law. However, taxpayers who reside outside the United States are deemed to reside in Washington, D.C., for lien-filing purposes. Accordingly, the Notice of Federal Tax Lien is filed with the Recorder of Deeds for the District of Columbia (IRM, §5.17.2.3.2). 

A withdrawal or release of the lien, along with certain other prerequisites, is required for removal of the taxpayer’s information from TECS. Thus, the lengthy process may result in detention at the border for travelers to the United States for a period after the IRS has withdrawn or released a lien.

A taxpayer who resides outside the United States may not be aware of outstanding federal tax liabilities if the address on record for the taxpayer is outdated or otherwise incorrect. Consequently, tax advisers with clients who reside outside the United States should ensure that the correct address for the taxpayer is used on the client’s returns and, if the client no longer is required to file U.S. returns, that the IRS still is able to contact the taxpayer about previously filed returns. Taxpayers should be advised that a failure to keep the IRS apprised of a change in mailing address may result in an unwelcome—and potentially embarrassing—surprise when the taxpayer seeks to enter the United States.

Editor’s note: This article is adapted from “Homeland Security May Contact U.S. Persons Living Abroad Who Owe Back Taxes,” in The Tax Adviser, July 2012, page 438.

By Megan Marlin, J.D., LL.M., (megan.e.marlin@us.pwc.com) and Kevin Curran, J.D., LL.M., (kevin.curran@us.pwc.com) senior associate and director, respectively, at PwC in Washington, D.C.

To comment on this article or to suggest an idea for another article, contact Paul Bonner, senior editor, at pbonner@aicpa.org or 919-402-4434.