TaxConnections

 
 

Access Leading Tax Experts And Technology
In Our Global Digital Marketplace

Please enter your input in search


How Could The IRS Find Out That I Am Not Tax Compliant As An Expat?



Olivier Wagner

You’re living your adventure and you’re settled in your new home, having non-US bank accounts, a non-US employer and a non-US social life. You have limited ties with the US and since the people who pay you (banks, employer) are not in touch with the IRS, you consider simply not filing US tax return. What could go wrong?

As you might know, on some level… US citizens are required to report their worldwide income on a US tax return, regardless of where they live.

Think AGAIN…

IRS has a few proven ways they use to track people down.

Below you will find the most common ways that IRS can track you down and check if you filed your US tax return, no matter where you live in the World.

#1 FATCA (Foreign Account Tax Compliance Act)

This is an act that became a United State Federal Law that was passed in 2010 requiring all non-U.S financial institutions to search their records for customers with the connections to the US, and including any indications of records of birth or prior residency in the U.S.

All foreign institutions need to report identities and assets to U.S Department of Treasury. If you have a foreign account in your new country of choice, they have a responsibility to report your information to the U.S Department of Treasury. Want to understand this in more depth you can find more details HERE.

#2 By Your Passport

Your passport is an officially registered document with the US State Department, and they have the power to track you down. The good news is that technically IRS cannot take your passport away from you, but they can start the process that leads US State Department restricting your passport, in extreme cases.

You should only worry about this when you didn’t file US tax return and owe a large amount of taxes to the IRS and have not made any arrangement with them to pay that back.

This applies to taxpayers owing over $50,000 to the IRS – it is rather extreme and given the notices, the IRS has to give prior to that stage fairly few people are impacted. With that said, FBAR penalties are included and it is easy to imagine such penalties to reach $50,000.

Click here if you want to learn more details about your rights and what the IRS can do if you didn’t file your US tax return.

#3 IRS Received The 1099 Form

The 1099 form is an official record that entity or a person gave you or paid you money, and they had to report that to the IRS. They did that by issuing a 1099 form to you and the IRS, that included your Social Security number or your taxpayer identification number. That’s how IRS knows about your earned income and if you filed your US tax return.

Click here and you will see a detailed breakdown of what kind of income is considered 1099 income which is also known as Miscellaneous Income. This is much more frequent. I had a few clients contacted by the IRS due to the fact that a US payor issued a form 1099 to them.

#4 Beneficiary Of A Deceased US Citizen

Are you a beneficiary? Are you a person that received assets from a person after their death? If someone in your life, it could be a family member or a close friend decided to make you the beneficiary of their assets after their death, you are responsible for filing US tax return on that inheritance, but there are many exemptions to this rule.

Estate and inheritance tax laws are complicated and complex. As federal tax law and state tax laws are different, and there is a lot of things to consider.

If you find yourself in that situation, I would recommend you hire a tax lawyer and professional accountant to handle your affairs regarding US tax return. In case you bored and want to expand your knowledge about Inheritance, US tax return and asset taxes click here to see what IRS has to say about this.

#5 You Get Tracked By Your Bank

If you have an active US bank account, it is banks obligation to report all the information they have about you especially money they pay you (the interest) and how much is in your bank accounts, to the IRS.

The good thing is IRS does not have direct access to your bank information, but they can make an official request to a bank to get the information they need.

How does the IRS know about your bank account? One of the ways is from a previously filed US tax return and the tax refunds that were directly deposited to your bank account. Other ways are through income statements like 1099 form (INT), that you and IRS received from your bank to report interest earned.

This will only apply if you still have an active US bank account, where money gets deposited or earns interest.

Lastly, if you plan on moving back to the US and you are married, in the process of sponsoring him/her for a green card, you would have to provide US tax returns to show that you have an income in excess of the poverty level.

There you have it six top ways IRS can find you even if you live overseas, have non-US employer and non-US bank accounts, and check if you filed your US tax return. These ways will only apply in special cases, but Taxes can be a confusing matter at times.

That’s we wanted to share this information with you so you have an idea and we hope this article gave you some basic understanding and insight into what you can expect from the IRS, in those special cases.

Have a question? Contact Olivier Wagner.

 

Olivier Wagner

Olivier Wagner

Certified Public Accountant, U.S. immigrant, expat, and perpetual traveler Olivier Wagner preaches the philosophy of being a worldly American. He uses his expertise to show you how to use 100% legal strategies (beyond traditionally maligned “tax havens”) to keep your income and assets safe from the IRS. Before obtaining my U.S. citizenship and traveling all over the world, he was born and raised in France. His experience learning the intricacies of the U.S. immigration process combined with his desire to travel freely lead me to specialize in taxes for Americans living and working abroad. He helps Americans Abroad file their taxes and devise strategies that make sense for their lifestyle. These strategies encompass all aspects of registering an offshore business, opening a bank account abroad, and planning out new residencies and citizenships. He is operating the accounting firm 1040 Abroad. 1040 Abroad exists to help you make sense of an incredibly large world of possibilities. Find out more by visiting www.1040abroad.com

2 thoughts on “How Could The IRS Find Out That I Am Not Tax Compliant As An Expat?

  1. Avatar Ron Henderson says:

    This really is a bit of a stretch, isn’t it? Even for expats, rather than those who’ve grown up outside the US.

    #1 FATCA – Indeed, if you are identified as a US person, your bank may report name, address, SSN (if known) plus year-end account balances and interest/dividend income to the IRS. Nothing else, however. Currently the IRS has made no effort to contact non-compliant non-residents reported under FATCA, but that could change in future. However, it is by no means the case that all US persons are reported under FATCA. Depending on other citizenships, place of birth, and how strict a country’s banks enforce the rules, it can be very easy to simply deny US citizenship when asked and avoid the whole problem.

    #2 Passport – Passport denial or revocation is a punishment, not a means for IRS to track down non-compliant US citizens. Your logic is deeply flawed.

    #3 1099 Form – Indeed, if one has income from a US source, the IRS may learn of it. But a non-resident working for employers or clients outside the US need not worry about 1099s because they will never be issued. Non-US earned income, by definition, is not reported to the IRS.

    #4 Inheritance – If there are assets located in the US, the situation may be complicated. If it’s just cash it can be sent overseas without the recipient notifying the IRS. The onus is on the recipient to report – “you are responsible for filing US tax return on that inheritance” – and one may choose not to. Also, as a general rule, the estate pays any taxes owing, not the beneficiary.

    #5 US bank – Again, if you have US assets, just like US income sources, the IRS will know of your existence, and in some may cases may become curious to why you ceased filing returns.

    Overall, this is a very silly list, since #1, FATCA, is really the only way that the IRS can obtain (very limited) information about non-compliant non-residents with no US assets or income sources. And even then FATCA reporting is easily avoided in many countries, particularly by those with second passports. To date the IRS shows no interest in “tracking down” anyone reported by FATCA.

  2. Avatar Bjorn Slijpers says:

    #1 – FATCA reporting – is the only possible way a non-resident US person with no US financial ties (i.e. no bank account, no 1099s) can be identified by the IRS. And even then, very limited information, only account balances and interest/dividend income. Currently the IRS has made no attempt to contact non-residents who do not file and who do not have US financial ties such as assets or income sources. Accidental Americans (dual citizens with no connection to the US) need not worry and are best advised not to come into US tax compliance.

    Expats who’ve left the US and stopped filing but who do still have accounts or income sources in the US, well, that may create future problems.

Leave a Reply