You Should Know

There is a system whereby foreign banks are obligated to report accounts held by Americans to the US for "anti terrorism" purposes.

And as a us citizen you are also obligated to report all of your foreign accounts in a FBAR filing each year.

"Does the IRS have authority to issue such requests to foreign banks?"

issue requests, sure.

and companies with an international presence or countries with a working relationship with the US would be happy to respond to the IRS at least in rough confirmation.

4 out of 5 people in the US would never have to worry about making more than $125 k a year, but if you're reporting $60,000 annual income and then buying a house every year, the IRS would start looking into it.

irs interest depends on how large the income disparity appears to be before they start officially investigating and probing for more certain corroboration and confirmations.

it's just like your taxes in the US.

If you have a yard sale and don't report it, the IRS isn't going to pay attention to the extra $200 you didn't report that year unless you happened to sell a personal boat later that year for 200k.

it's all about what flags the interest of the IRS.

"How would the IRS even know what foreign bank to issue these requests to?"

If you have over 10,000 usd abroad in total, all foreign holdings included, you are required to file what is called an fbar that year, which really is I think five fields on one form, you fill out the name of the Bank, address, the country and the amount.

that's so the IRS can keep tabs on. approximately how much you're making versus how much you say you're making if you're keeping your savings overseas.

"...gets tracked on a per-individual basis."

No worries, these are all great questions and I'm treating them like a refresher course.

The IRS is largely dependent on self-reporting whether us citizens or residents are inside or outside of the country, which largely works because maintaining a believable fiction about your income is not easy to consistently pull off and consequences for self-reporting income incorrectly are so much higher than the amount of taxes most people are going to pay that it makes sense to self-report as accurately as you can.

oh i see. thanks.

yea, the 1116 is for people paying formal taxes to the foreign government directly, usually because you're living there as a permanent resident or operating a business full-time and significantly, have established your permanent tax home in that other country.

using the 1116, you don't pay all of the taxes twice, although you still pay some of them twice because the US wants that cash.

the FEIE, form 2555, means that your tax is still in the US and only requires that you're not in the US for 330 days out of the year to exempt income tax on up to 125k of income earned while outside of the country.

the feie does have a residency test as well, but the physical presence qualification of 330 days each year is simpler and requires much less trouble to set up initially (permanent residency, switching tax homes, work permits and all that) to qualify for, so I only deal with the physical presence test.

There were only “two parties in all States,” Randolph concluded. “The ins and the outs.” The ins construed governmental power broadly for the gain of their own “patronage and wealth,” while the outs tried to limit such power. “But let the outs get in . . . and you will find their Constitutional scruples and arguments vanish like dew before the morning sun.”