IRS Use of Customs Hold for International Taxpayers

another fear mongering post with a few errors from a practitioners blog :
In a recent Memorandum from the Treasury Inspector General Tax Administration (“TIGTA”) to the IRS TIGTA discussed one of the methods the IRS uses in its efforts to collect delinquent taxes and penalties, namely the Customs Hold. According the the Memorandum:
“International tax noncompliance remains a significant area of concern and focus for the IRS. However, the IRS’s collection efforts need to be enhanced to ensure that delinquent international taxpayers become compliant with their U.S. tax obligations”
The methods of international enforcement are seldom discussed and often ignored by U.S. taxpayers with offshore accounts and/or offshore assets. “I live in …, how is the IRS going to find me and collect from me” is a statement made all too often. One method of reaching U.S. taxpayers is the Customs Hold.

As discussed in the Memorandum:
“International revenue officers can request that a Customs Hold be input into the Treasury Enforcement Communication System (TECS) for delinquent taxpayers. Once the taxpayer is on the TECS, the U.S. Department of Homeland Security (DHS) notifies the IRS whenever the taxpayer travels into the United States. International 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.”
So, for U.S. taxpayers who face international enforcement referral for IRS inquiry upon entry into the U.S. is one method of collecting assessed liabilities.
We anticipate that the Customs Hold will be used on a more frequent basis now that the Swiss bank non-prosecution program participation deadline of September 15, 2014 has passed. U.S. taxpayers who have been placed on the “recalcitrant” list should expect tax audit letters and FBAR “willfulness” based assessments. For those taxpayers who do not have accounts at Swiss banks, they have the Foreign Account Tax Compliance Act (“FATCA”) notifications to deal with.
There are over 78,000 global financial institutions that have entered into direct information exchange agreements with the IRS. These institutions will be issuing FATCA letters to U.S. taxpayers asking them to provide information required under FATCA. The failure to provide the information will result in the taxpayers being placed on the FATCA “recalcitrant ” list which will be delivered to the IRS. The financial institutions will also withhold 30% of the U.S. taxpayers account earnings and remit those earning to the IRS.
Being placed on a recalcitrant list almost certainly will result in FBAR civil “willfulness” penalties under the Bank Secrecy Act of the greater of $100,000 per year per account or 50% of the highest annual account balance (that is incorrect... balance of 6/30 following the year of the filing violation) for six (6) years (hypothetically yes but realistically absolutely not, one can expect as a worst case scenario before litigation max. 3 - see excessive fines clause of the 8th amendment). Criminal prosecution also remains a possibility (yes again hypothetically but in reality in less than 1% of all the cases). In addition to the FBAR penalties, Taxpayers face income tax assessments and potential fraud or evasion penalties of 75% of the tax. .".......(hypothetically yes but in reality the statistics say that > 85% of expats in general do not owe any income tax to the US due to FTC, FEIE) . I would go even further and predict that close to 100% of the expats that are being placed on a recalcitrant list for whatever reason in 2015 have 0.00$ tax liability or deficiency.

Both the FBAR and income tax assessments will be part of the Customs Hold procedure.
For those taxpayers who would like to come forward, the IRS has two approaches. First, for those taxpayers who qualify there are the Streamline Procedures (non-resident and domestic). The requirement for either program is the certification by the taxpayer that their conduct was “non-willful”. If a taxpayer meets the “non-willful” criteris then for non-residents there is no FBAR penalty and for residents the penalty is 5% of the highest year end balance for the last three (3) years. For those taxpayers who do not meet the test of the Streamline Procedures there is the offshore voluntary disclosure program (OVDP 2014). The OVDP 2014 is based upon full disclosure, but is not intent based. The requirements are payment of tax on the unreported income, an accuracy related penalty of 20% interest on the tax deficiency and an FBAR penalty (civil miscellaneous penalty) of 27.5% of the highest single year account balance for all offshore financial assets held in the preceding eight (8) years.
Choosing whether to use a Streamline Procedure or enter the OVDP 2014 requires careful deliberation. There is certainly cost to consider, but there are material differences in the two approaches. The OVDP 2014 provides certain protections against prosecution and waivers of penalties for failing to file certain information returns, like Controlled Foreign Corporation returns, Reports of Foreign Gifts, Bequests or Inheritances and Statment of Specified Foreign Financial Assets. The Streamline Procedures do not provide these protections.
 http://taxattorneycalifornia.net/irs-use-of-customs-hold-for-international-taxpayers/