Do you have any tax debts with the IRS? If yes, you may run the risk of losing your money to the state. The IRS has every right to take it from any bank accounts, whether in the U.S. or overseas, unless the funds are protected by some legal mechanisms or exemptions.
One of the ways for the IRS to take your money is by issuing a bank levy. The latter freezes the bank account, and you lose access to your funds. Even though the account in question remains under your name, the bank levy gives the IRS temporary control over it. The IRS will inform you of the levy and give you 21 days to pay the tax debt or request a hearing. If you don’t do anything, the IRS will take the money from your account and use it to settle the tax arrears.
To prevent a bank levy, you need to either pay the tax debt in full, negotiate a payment plan or an offer in compromise with the IRS, or prove that you are facing financial difficulties and that the levy would cause you undue hardship. You can also challenge the legality of the levy or claim that the money in your account is exempt from it. NB: social security benefits, student loan disbursements and grants, supplemental security income benefits, child support payments, veterans’ benefits, federal employee and civil service retirement benefits, workers’ compensation payments, military annuities and survivor benefits, public assistance payments, unemployment benefits, and minimum exempt income may not be subject to the above levy.
However, these exemptions are not absolute. They may be conditional or have certain limits. Say, the IRS is still able to access your social security benefits if you owe federal income taxes but only up to 15% of your monthly payment. Plus, the exemptions will apply to the money directly deposited into your account by the income source and not any other funds. If you withdraw the money and deposit it into another account or mix it with other funds, the exemption may be lost.
Another way that the IRS can get hold of your money is by garnishing your wages or other sources of income. This means that the IRS will take a part of your paycheck or other payments before you receive them and use it to settle the tax debt. The IRS has the right to garnish your state tax refunds, federal payments, and property income.
A third way for the above government agency to access your money is by seizing and selling your physical assets, e.g., your boat, house, car, or jewelry. This is a more extreme measure that the IRS usually uses when other methods fail. The IRS will notify you of its intention to seize the property and give you the chance to appeal or make arrangements to pay the tax indebtedness. If you fail to do anything, the IRS will follow its original intention and sell the seized property at a public auction. The money from the sale will be used to pay the indebtedness, and any extra will be returned to you.
To prevent asset seizure, follow the same steps as for preventing a bank levy or a wage garnishment. Alternatively, you may challenge the legality of the seizure or claim that the property is seizure-exempt.
As you can see, the IRS has many ways to get hold of your money if you owe taxes, and there are few bank accounts that the IRS can’t touch. However, some legal structures and strategies will help you shield your money from the IRS:
- Creating an irrevocable trust. The said trust is a legal entity that holds and manages your assets for the beneficiaries’ benefit. Right after you transfer assets to the trust, you lose control and ownership of them, and they are no longer part of your taxable estate. This means the IRS has no opportunity to levy or seize the assets in the trust, unless the trust itself owes taxes or is involved in fraud or evasion. However, please be careful when creating an irrevocable trust, as it is a permanent and complex arrangement that has multiple tax and legal implications. Make sure that the trust is properly funded and administered, and that you do not retain any interest or benefit from the trust assets.
- Establishing an offshore company. Set up in a foreign jurisdiction that offers the benefit of low or no taxes and protects your privacy and assets to the maximum extent possible, an offshore company is a powerful instrument for asset protection By transferring your assets to the above structure, you shield them from the IRS, as the offshore business is a separate legal entity and as such is not subject to US tax laws or reporting requirements. However, setting up an offshore company is both costly and complicated. You will most likely require professional guidance and compliance to do it. Besides, make sure that you report and pay taxes on any income or gains received from the offshore company, and that you do not use the offshore company for illegal or fraudulent purposes.
- Opening an offshore bank account. Set up in a foreign jurisdiction with low or no taxes, laws protecting your privacy, and powerful asset protection standards, an offshore bank account lets you shield the funds deposited thereinto from the IRS, as the offshore bank is not obliged to share your information or comply with US tax laws or reporting requirements. However, risks and challenges are unavoidable when you open a bank account abroad, so pay close attention to due diligence and compliance requirements. Remember that taxes on any income or interest that you earn from the offshore bank account shall be reported and paid and never use the said account for any illegal or fraudulent purposes.
To safeguard your wealth from taxes, lawsuits, or other threats, consider setting up a foreign company with IRS-proof bank accounts in an offshore jurisdiction boasting strong asset protection, low taxes, and superb privacy parameters. At International Wealth, we will anytime help you find the best solution to match your requirements. Don’t waste this opportunity to benefit from a free consultation and discuss your options!