By admin of MillarLaw A Professional Corporation On Sunday, January 15, 2017

In many cases we have handled the taxpayers were dual nationals who have not only failed to adequately disclose and report foreign bank account and income to the IRS, but have also failed to report to the other country. This raises the spectre of the taxpayer facing under reporting liabilities in multiple countries.

Take for example a dual national who improperly claims that s/he is a non-resident for tax purposes in their country of origin and also fails to report income and disclose their foreign financial accounts by filing an FBAR. That taxpayer, faces dual enforcement potential. The foreign account data may be shared with the U.S. through an information exchange agreement under the Foreign Account Tax Compliance Act (FATCA). The FATCA reporting initiates exposure to U.S. enforcement actions. But, the native revenue enforcement agencies may also audit the financial records and look for unreported income and CURRENCY CONTROL violations.

Many countries, like India and China have strict currency control laws. If they discover a violation of the currency controls the country may request enforcement assistance under a Mutual Legal Assistance Treaty with the U.S.

In such circumstances the U.S. Department of Justice and the IRS act on behalf of the foreign state. The taxpayer, therefore, faces the possibility of having to fight enforcement of multiple claims over the same funds in multiple jurisdictions. The practical effect of this situation is that the taxpayer should consult with counsel to determine the most appropriate form of U.S. disclosure and plan for defense of foreign claims.