How does the IRS Find Foreign Accounts

How does the IRS Find Foreign Accounts

IRS Foreign Bank Account Investigations

How does IRS Investigate Foreign Bank Accounts? With the IRS increased enforcement of offshore account compliance, trust reporting and income disclosure, U.S. Taxpayers are at higher risk of penalties. The failure to properly report foreign money may result in significant fines.

One common question we receive, is How does the IRS Find Foreign Accounts?

With the recent creation of several International Tax Enforcement Groups, coupled by renewed interest in FBAR compliance, along with FATCA enforcement, there are 5 main ways the IRS located unreported foreign money.

5 Examples of IRS Investigations

These are 5 common methods the IRS used to locate and discover Foreign Accounts:

FATCA Reporting

One of easiest ways for the IRS to discover your foreign bank account is to have the information hand-fed to them from various Foreign Financial Institutions.

In accordance with FATCA (Foreign Account Tax Compliance Act), more than 110 different foreign countries and more than 300,000 foreign financial institutions are actively reporting us account holder information to the IRS.

In other words, the IRS not have to do anything, since the majority of large and small institutions from most FATCA compliant countries around the world are already reporting to the IRS.

Whistleblowers

We are not huge fans of most whistleblowers. If blowing the whistle is to protect the interests of the underrepresented then we are all for it. 

Usually, this is not the case. Most of the time, it is just a “tattle-tale” — someone who’s looking to get out of trouble for something they did, by getting you in trouble.

FBAR balances can now be considered as part of the reward someone can claim for ratting you out — you have to be careful when not reporting foreign accounts — along with vetting out the company you keep.

IRS Audits

This is always a danger.

The IRS can Audit you for any number different reasons. In recent years, with the introduction of FATCA, and renewed interest in FBAR penalties (which are lopsided and extreme in nature), if you are under audit, you have to be careful.

This is especially true if you are in an eggshell audit or reverse eggshell audit. If you provide the agent with inaccurate and/or intentional misrepresentations or omissions — it may take a turn for the worse.

Therefore, if you’re under audit — and especially if you receive an audit notice and you have unreported for undisclosed foreign bank accounts – you need to be careful before making any representations or statements to the IRS.

IRS Voluntary Disclosure/Amnesty by a 3rd Party

Here’s a common example: David decides he wants to get into tax compliance by entering the voluntary disclosure program. David has co-ownership of certain accounts with other individuals he partnered with for his business.

David’s partners are not so keen on getting into compliance and are trying to fly below the radar hoping that the foreign country they picked would not report the foreign accounts. David on the other hand, is very concerned about getting in criminal trouble – since all partners were aware of the reporting requirement.

Therefore David makes the leap to get into compliance.

Unfortunately as part of the compliance process, David has to identify the names of the joint account holders, which can lead to problems for the partners.

J-5 & Coinbase Subpoena

The United States is a member of J5 which is an international task force designed to combat and reduce offshore evasion, with an emphasis placed on cryptocurrency. 

In addition, the IRS issued a summon/subpoena to Coinbase. And, even though Coinbase tried to fight it, in the end they relented and  turned over upwards of 14,000 Account holders names to the IRS.

While the internal Revenue Service and financial crimes enforcement unit (FinCEN) have not formalized specific reporting requirements the cryptocurrency, it is safe say that if you have your crypto currency in an account or other type of Financial institution (as opposed to personal wallet), the IRS may enforce foreign bank account reporting rules against you.

What Can You Do?

If you have unreported offshore/foreign income, assets, accounts, or investments — the best thing is generally to try to get into IRS Offshore Compliance though voluntary disclosure/tax amnesty before it is too late and you lose the right to disclose.

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure

Contact our firm today for assistance with getting compliant.


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