why: so the government won’t be able to use your money for whatever the fuck they’re planning for the next 4 years.
as a traveler, none of my money has been funding Israel, for example.
one-step method: you basically fill out one extra tax form called FEIE while you’re doing your taxes, write down the dates you were outside of the country, and then since you aren’t in the country and are not receiving any services from the US, you don’t have to pay income tax up to a certain amount (it’s a little over 125k this year).
they wouldn’t know initially.
you report your income, and then if the IRS suspects foul play, they would check later.
If you’re making over 125k, then you’ll likely have some kind of connected web/media presence that would allow them to at least circumstances confirm your position and standing within the field.
they could also check your bank balance and international holdings against the amount you said you’ve been making and see if it matches up.
The federal government is well aware whenever a person enters the country and quite possibly for exiting.
yes, customs and border protection keeps records of legal entries and exits to and from the US.
why?
Everyone is coming up with elaborate schemes the government can use to determine if someone really was out of the country when they claimed to be.
Does the IRS have authority to issue such requests to foreign banks? How would the IRS even know what foreign bank to issue these requests to?
Sorry, I have no knowledge about what information is communicated across international borders with regards to the banking world and how this gets tracked on a per-individual basis.
“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.
Ok, but realistically, the people who would actually attempt tax evasion here wouldn’t be susceptible to any of the above.
Let’s assume a scenario where you have a dual citizen of the US and a South American country that has less than stellar relations with the US government.
Let’s say they obtained their US citizenship by being born in the country during a temporary period of time that the parents resided there. The family decided to move back after a year or two, another 40 years passed, and the kid has grown to be a successful plastic surgeon who runs a self owned clinic and earns $200k income annually. Being aware of their dual citizenship they keep their wealth invested in entities with no US presence and never self-report anything to the IRS.
This is where I am not seeing any way for the IRS to enforce or do anything about this type of tax evasion.