Making wire transfers is a convenient and fast method of moving funds electronically from one bank account to another. The process generally ensures a recipient’s access to funds within just a couple of days of transfer.
That being said, if you are a taxpayer with foreign income, remember that an international wire transfer could prompt an IRS audit, potentially leading to serious financial and legal consequences. Before using a wire transfer for sending funds to a US bank from your foreign account, make sure you completely understand the potential tax implications under the Foreign Account Tax Compliance Act (FATCA). An international wire transfer may expose you to various civil penalties and even criminal tax reporting liability.
Bank Compliance Requirements
Banking institutions have to comply not only with the FATCA and several IGAs, but also the Patriot Act, the Bank Secrecy Act, anti-money laundering and “Know Your Customer” (KYC) requirements. Bound by these regulations, banks have to report any “suspicious activity,” which includes large bank transfers from foreign sources. In addition, be aware of numerous restrictions prohibiting transfer of cash from countries such as Iran to the US under OFAC. Also, folks at IRS are aware of attempts to send home a foreign account via cryptocurrency brokerages
The FATCA-related disclosures and suspicious activity reports may provide the IRS sufficient cause to launch an audit or, at times, even a full-blown criminal investigation of the person or entity linked to the foreign account. In other words, transferring money from abroad to the US can tip off the agency about the existence of a foreign account.
Civil and Criminal Implications
And if you have not already reported that account to the IRS, you may face a slew of civil or/and criminal repercussions because of noncompliance with FATCA. This includes, but is not limited to restitution orders, fines, supervised release, and even, incarceration in a federal prison. However, there are several ways for a taxpayer to handle (or better, avoid) these complications. The safest and best route is, obviously, to comply fully with FATCA and all other related laws right from the start, beginning when an account is created.
Filing Requirements
Keep in mind that depending on your specific financial circumstances, it may involve filing a few tax forms, such as:
- FinCEN Form 114, also known as the FBAR
- Form 926
- Form 5471
- Form 8858
- Form 8938
There could be grave consequences if you fail to report foreign accounts to the agency. And even inadvertent omissions and errors could trigger hefty penalties. On the other hand, willful tax evasion usually makes criminal prosecution inevitable.
Have questions? Contact Tax Lawyer Venar Ayar, Detroit, Michigan.
3 comments on “How International Wire Transfers May Trigger An IRS Audit”
Tax compliant U.S. taxpayers have nothing to fear from using wire transfers. I do suggest, however, that those contemplating large or unusual wire transfers explain the transfer to their bank before execution to avoid having the bank file a suspicious activity report. I’ve found these pre-transfer explanations quite effective in avoiding FinCEN problems.
Also, those who’ve negligently failed to report can come into compliance under the Streamlined Filing Compliance Procedures. Those who’ve committed tax crimes have until September to utilize the Offshore Voluntary Disclosure Program to avoid possible criminal sanctions.
Robert S. Steinberg, Esquire
Miami, FL
Good points, Robert.
I have found a more efficient method to transfer funds from off-shore banks is to have the funds sent by a check or draft drawn on the bank’s U.S. or New York correspondent bank and then sent to me using DHL or FedEx. I receive the funds more quickly and avoid the float game some bank’s like to play. Besides, with DHL or FedEx you can track the shipment and know when it is supposed to arrive.
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