How could the IRS find out that I am not tax compliant as an expat?

Oct 4, 2019

You’re living your adventure and you’re settled in your new home. You are having non-US bank accounts, a non-US employer and a non-US social life.

You have limited ties with the US. The people who pay you (banks, employer) are not in touch with the IRS. That’s why 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 which means Foreign Account Tax Compliance Act – that is a mouthful

This act became a United State Federal Law. The act passed in 2010. It required all non-U.S financial institutions to search their records for customers with the connections to the US. Act includes 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. Most importantly, the IRS has the power to track you down. The good news is that technically IRS cannot take your passport away from you. 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. Or, 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 so it impacts fairly few people. With that said, this also includes FBAR penalties. Thus, 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. The form 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. This type of income 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 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. A tax expert will 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. 

#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. Report includes the 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 the 1099 form (INT). You and IRS received this from your bank to report interest earned.

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

Lastly, if you plan on moving back to the US and you are married you must have your taxes in place. In the process of sponsoring a spouse for a green card, you would have to provide US tax returns. Showcase 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. Even if you have non- US employer and non-US bank accounts. These ways will only apply in special cases. Taxes can be a confusing matter at times.

We hope this article gave you some basic understanding and insight into what you can expect from the IRS, in those special cases. 


U.S. Taxes For American Expats E-book

FREE U.S. Tax Guide for Americans Abroad

The only e-book about U.S. Expat Taxes you need to read! Covers

1. Foreign Tax Credit vs. Foreign Earned Income Exclusion

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