How International Wire Transfers May Prompt an IRS Audit
October 1, 2019

How International Wire Transfers May Prompt an IRS Audit


Wire transfers are convenient and secure methods for sending money all over the world. In the era of cryptocurrencies and PayPal, wire transfers aren’t the only international capital transfer tools available, but relying on the security of established financial institutions can be reassuring when you have overseas financial interests.

If you don’t get all your ducks in a row ahead of time, however, receiving a wire transfer from a foreign entity could get you on the hook with the IRS. There’s nothing inherently illegal about receiving a foreign wire transfer, but at the same time, there’s a right and a wrong way to do everything. Learn the proper process for declaring your foreign financial interests and how to receive wire transfers without getting on the bad side of the IRS.

What Is The Foreign Account Tax Compliance Act (FATCA)?

The Foreign Account Tax Compliance Act (FATCA) ensures that U.S. citizens, residents, and people operating in the United States pay taxes on foreign accounts. Failing to declare your foreign bank accounts could cause you to become noncompliant with FATCA, which could trigger an audit by the IRS.

Receiving a wire transfer from a foreign account is, to the IRS, tantamount to a declaration that your foreign account exists. If you have money in a foreign account, the IRS wants to know about it, and if you’re concerned that you aren’t in compliance with FATCA, you need to speak with an international tax lawyer before you send or receive wire transfers between domestic and foreign accounts.

FATCA Filing Requirements

Getting into compliance with FATCA isn’t as easy as filling out a simple form online. Instead, you may need to complete a variety of different types of complicated paperwork depending on your personal and financial circumstances. Here are a few examples of the types of tax forms you might need to file to get into FATCA compliance:

  1. Form 8938 – Statement of Specified Foreign Financial Assets
  2. FinCEN Form 114 (FBAR) – Report Foreign Bank and Financial Accounts
  3. Form 926 – Return by a U.S. Transferor of Property to a Foreign Corporation
  4. Form 5471 – Information Return of U.S. Persons With Respect To Certain Foreign Corporations
  5. Form 8858 – Information Return of U.S. Persons With Respect to Foreign Disregarded Entities (FDEs) and Foreign Branches (FBs)

Finding these forms is relatively easy, but filling them out correctly is more difficult. If you aren’t careful, your attempts to bring yourself into compliance and avoid an audit could get you into even more trouble. If you have any concerns that you won’t be able to determine which forms are needed, how to fill them out, and when to file them, then you should speak with a tax attorney or tax professional before you proceed.

FATCA Wire Transfer

There’s a way to make your wire transfers compliant with FATCA. The IRS simply wants to know which accounts you have so it can acquire tax revenue appropriately. As long as you’ve used the forms we’ve listed above to come into compliance with FATCA, sending or receiving bank transfers from foreign countries shouldn’t be a problem.

Keep in mind, however, that FATCA isn’t the only law that applies to international bank transfers. When you want to send or receive foreign money in the United States, you also have the Patriot Act, the Bank Secrecy Act (BSA), and a variety of other federal statutes to contend with. It’s always important to be completely confident in your understanding of the implications of foreign wire transfers before you proceed⁠—talk with a tax attorney if you have any questions.

Do You Have To Pay Taxes On Money Transferred From Overseas?

Generally, yes. You don’t have to pay taxes on international funds under a certain threshold, but if you’re importing a significant amount of capital from overseas, you should expect to pay taxes on your transfers.

Taxes usually only apply to wire transfers that were clearly sent for business purposes. While it might be necessary to report gifts of foreign money to the IRS, this revenue usually isn’t taxed. Remember that you’ll also have to pay the bank fees associated with your transfer of funds, and depending on which country your money is coming from, you may also need to pay a fee to have the funds transferred to your American bank account.

International Wire Transfers Could Prompt An IRS Audit

An IRS audit is the last thing you need. The legwork involved in making sure your foreign accounts are on the level with the IRS is, however, exhausting, which is why it’s helpful to rely on the professionals for assistance.

Generally speaking, suspicious activity reports (SARs) and non-disclosure of FATCA related accounts can trigger the IRS to start an audit or criminal investigation against an individual or entity associated with the wire transfer. We recommend you inform the IRS about all your foreign accounts, because sending money to the U.S. from foreign bank accounts owned by the individual or entity will alert the IRS of these transfers. If those accounts have not been reported to the IRS, it creates a variety of civil and criminal consequences due to non-compliance with FATCA, including but not limited to restitution orders, fines, supervised release and potentially federal prison.

At Abajian Law, we know the tax code inside and out, and we specialize in international tax law. Every day, we help people like you navigate the complexities of filing for foreign accounts, and we know the exact steps you need to take to avoid getting a friendly call from the IRS. Call 818-396-5059 today to get started with a free consultation.

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