How can the IRS enforce taxes & penalties if all your assets are located abroad?
Here is an example:
Joe lives in Israel. He has $300,000 in savings in Israeli Bank HaPoalim. As a US citizen subject to citizenship based taxation, he's required to file a tax return each year. He never filed, and has been self employed and later a shareholder of an Israeli corporation for many years.
He has no real ties to the US, being born in Israel and barely knows English. He feels no reason to file a US tax return, and has no fear of the IRS.
The IRS finally gets wind of his non-filing, and assesses an accumulated $150,000 of taxes and penalties. He ignores the letters, thinking that they have no way of enforcing it.
One day he checks his Israeli bank account, and to his shock his $300k in savings has been reduced to $150k.
He calls his bank, which explains: The bank has a correspondent account in a US bank for its US dealings. The IRS forced the bank to hand over the $150k owed by Joe from this US based account, in lieu of collecting directly from Joe. Now, Joe owes the bank $150k.
The bank proceeded to remove $150k from his Israeli account to cover the amount paid to the IRS.
While such enforcement action is rare, it is a possibility you definitely want to avoid.
The US isn't some third world country with limited tax enforcement ability - as the dominant global player in finance, the IRS will figure out a way to get what it wants.
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