Overview

Cross-border collection issues describe the legal and practical steps the IRS can take to find and collect unpaid U.S. taxes from assets held outside the United States. Since the 2009 enactment of FATCA and expanding international information-sharing, the IRS and partner agencies have more tools to identify undisclosed foreign accounts and income (IRS, FATCA: https://www.irs.gov/businesses/corporations/foreign-account-tax-compliance-act-fatca). In my practice advising U.S. taxpayers with foreign holdings, I’ve seen routine information flows and treaty requests uncover accounts that taxpayers assumed would stay hidden.

How the IRS finds international assets

  • FATCA reporting: Foreign financial institutions (FFIs) report accounts held by U.S. persons to their tax authorities, and many of those reports are passed to the IRS under FATCA agreements (IRS FATCA page).
  • FBAR/Financial intelligence: FinCEN Form 114 (FBAR) and related information can be compared against tax returns; failures to file draw attention (FinCEN: https://www.fincen.gov/report-foreign-bank-and-financial-accounts).
  • Tax treaty and MLAT requests: The IRS may use Mutual Legal Assistance Treaties (MLATs), Tax Information Exchange Agreements (TIEAs) and bilateral tax treaties to obtain bank records and ownership information.
  • Automatic exchange programs: Some countries exchange tax information automatically under multilateral arrangements; while the U.S. is not a CRS participant, many FATCA partner jurisdictions still exchange relevant data.

These mechanisms make it increasingly likely that undisclosed foreign accounts, trusts, or property will be detected.

Legal collection tools the IRS can use

When the IRS identifies foreign assets, its options include:

  • Issuing notices and demands for payment to the taxpayer.
  • Filing liens in the U.S. that attach to domestic and some foreign-situated property rights.
  • Levying assets that are reachable through U.S. financial intermediaries or via cooperation with foreign authorities.
  • Subpoenas and summonses for third-party records (including banks that participate in FATCA reporting).
  • Certifying seriously delinquent tax debt to the U.S. State Department, which can affect passports (IRS: certifying seriously delinquent tax debt).
  • Using MLAT/TIEA cooperation to seek asset freezes or domestic enforcement abroad in countries willing to assist.

Note: The IRS cannot simply teleport a levy to a foreign bank that has no U.S. presence — enforcement abroad depends on the other country’s willingness to cooperate and the legal remedies available under bilateral agreements.

Common triggers that prompt cross-border collection activity

  • Mismatches between reported income and FATCA-supplied account data.
  • Failure to file FBAR (FinCEN Form 114) when aggregate foreign account balances exceed $10,000 at any time in the year.
  • Failure to file Form 8938 when applicable (specified foreign financial assets exceed reporting thresholds).
  • Large, unexplained foreign transfers, inheritances, or property purchases.
  • Information shared by foreign tax authorities during audits or criminal investigations.

For more on FBAR basics and what triggers audits, see our guide: Reporting Foreign Bank Accounts and FBAR Basics.

Penalties and consequences to expect

Penalties depend on the violation type (FBAR, failure to file Form 8938, unreported income) and whether the conduct was willful. Typical issues include:

  • FBAR filing requirement: the $10,000 aggregate threshold is a bright-line filing trigger (FinCEN).
  • Civil penalties for FBAR violations can be substantial; willful violations carry the largest civil penalties and possible criminal exposure (see FinCEN/IRS guidance).
  • Tax assessments, interest, and accuracy-related penalties for undeclared income.
  • Potential criminal prosecution in egregious cases.
  • Administrative consequences such as passport certification for seriously delinquent debts.

Because penalty amounts and enforcement priorities change, always consult the current IRS and FinCEN guidance (IRS, FinCEN).

Practical remediation options and their trade-offs

If you discover or the IRS notifies you about undisclosed foreign assets, common remediation paths include:

  1. Streamlined Filing Compliance Procedures: Aimed at taxpayers whose omissions were non-willful; requires amended or delinquent returns and certain penalty calculations (IRS Streamlined: https://www.irs.gov/individuals/international-taxpayers/streamlined-filing-compliance-procedures).
  2. Delinquent FBAR Submission Procedures: For taxpayers who receive a warning or discover a missed FBAR filing and owe no additional tax (FinCEN/IRS guidance).
  3. Voluntary Disclosure (older OVDP closed in 2018): The formal Offshore Voluntary Disclosure Program ended in 2018. Today, voluntary compliance may involve the Streamlined Procedures or negotiating with the IRS through counsel.
  4. Audit defense and collection appeals: When the IRS issues a levy or liens, taxpayers can negotiate installment agreements, offers in compromise (OIC), or submit Collection Due Process appeals.

In my experience, timely voluntary compliance under the correct program dramatically reduces exposure compared with waiting for an IRS summons or a criminal referral.

Immediate checklist if you receive an IRS notice related to foreign assets

  • Don’t ignore the notice. Read it carefully and preserve all records for the periods referenced.
  • Confirm whether the issue is reporting (FBAR/Form 8938) or tax liability (unreported income). They are separate obligations.
  • Contact a tax professional experienced in international compliance; do not rely on general tax advice only.
  • If non-willful, consider the Streamlined Procedures; if willful, get legal counsel immediately.
  • If assessed, evaluate collection options: installment agreement, partial payment, or OIC — but be realistic about eligibility and documentation.

Case examples (anonymized)

  • Client A: A U.S. citizen who inherited a small foreign bank account and failed to file FBAR. After voluntary disclosure and filing delinquent FBARs under the Delinquent FBAR Submission Procedures, penalties were minimal and the issue was resolved in months.
  • Client B: An investor with significant unreported foreign investment income. The IRS used FATCA-derived leads; because the omissions were willful and substantial, civil penalties and an extended audit followed. The case required negotiated settlements and payment plans.

These examples illustrate why timely, correct disclosure is almost always preferable to waiting for discovery.

How collection works across jurisdictions — practical realities

  • Cooperation levels vary: some countries routinely help U.S. authorities under FATCA and treaties; others are slower or have protective bank secrecy laws that limit enforcement.
  • Many international banks comply with FATCA reporting even if they won’t execute an IRS levy directly. That reporting itself can trigger IRS collection activity against U.S.-based assets.
  • For asset recovery abroad, the IRS usually works through treaty channels or relies on the taxpayer’s willingness to repatriate funds.

For technical filing guidance, see our article on FATCA and account reporting: FATCA and FBAR: Reporting Foreign Accounts and Compliance.

Common misconceptions

  • Myth: ‘‘If the money is overseas, the IRS can’t find it.’’ Reality: FATCA and information exchange make discovery far more likely than in the past.
  • Myth: ‘‘You can always correct omissions later with no penalty.’’ Reality: Voluntary programs help, but penalties and interest can be significant depending on willfulness.
  • Myth: ‘‘Only high-net-worth people are targeted.’’ Reality: Detection is data-driven; even modest accounts that trigger reporting mismatches can lead to scrutiny.

Authoritative external sources: IRS FATCA page (https://www.irs.gov/businesses/corporations/foreign-account-tax-compliance-act-fatca), FinCEN FBAR page (https://www.fincen.gov/report-foreign-bank-and-financial-accounts), and IRS Streamlined Filing procedures (https://www.irs.gov/individuals/international-taxpayers/streamlined-filing-compliance-procedures).

Frequently asked questions (brief)

Q: What must I file? A: Separate obligations can apply — FBAR (FinCEN Form 114) for foreign accounts with $10,000 aggregate balance, and IRS Form 8938 for specified foreign financial assets above filing thresholds (IRS Form 8938 guidance).
Q: Will the IRS seize my foreign house? A: Seizure abroad depends on the country’s cooperation and local law; the IRS can act domestically and may use treaty channels.
Q: When should I hire counsel? A: If the IRS alleges willfulness, criminal exposure, or assesses very large penalties, hire specialized counsel immediately.

Professional disclaimer

This article is educational and does not constitute legal or tax advice. Use this information as a starting point — consult a qualified tax attorney, CPA, or enrolled agent for guidance tailored to your facts and the latest law.

Closing note

Cross-border collection issues are no longer a niche risk. Timely disclosure, accurate filings, and experienced representation are the most reliable ways to limit penalties and resolve disputes. If you have foreign accounts or assets, review your filings now and consult a practitioner before an IRS notice arrives.