In the post 9/11 world, the value of privacy is at an all-time high. Many U.S. taxpayers simply do not realize how exposed their financial information already may be, both to third parties and the federal government. Based on statements made recently by IRS officials, any unwanted financial transparency is likely to increase over time.
Most recently, the Treasury Department has announced revisions to its plan to implement specific reporting requirements against domestic banks and offshore banks that have U.S. taxpayer clients. These proposals have been strictly scrutinized by the domestic and international banking communities and conservative legislators, but the IRS is making no secret that it plans to use the new measures as soon as they are available. This would lead to more civil tax audits and criminal tax prosecutions, which should alarm all taxpayers, not just those at the top of the earning chain.
You may be able to act now to reduce the chances of a costly government audit or criminal tax investigations. The first step in that process is scheduling a consultation with the Tax Law Offices of David W. Klasing. Our dual-licensed Tax Lawyers and CPAs can assess your tax reporting history, no matter how complicated, and help you guarantee a pass on criminal tax prosecution in the right circumstances. Call today at (888) 904-4096 or schedule online here to book a reduced rate initial consultation.
What is really scarry here is all the IRS must do is add up all deposits to all bank accounts you control, eliminate interbank transfers and compare that to the income you have reported in a particular calendar year and that might be all she wrote. All it takes is $10,000 of unreported income to invite a criminal tax inquiry. Hopefully they are sophisticated enough to eliminate nontaxable sources of deposits like loans or gifts, but I would not count on it.
If you have failed to file a tax return for one or more years or have taken a position on a tax return that could not be supported upon an IRS or state tax authority audit, eggshell audit, reverse eggshell audit, or criminal tax investigation, it is in your best interest to contact an experienced tax defense attorney to determine your best route back into federal or state tax compliance without facing criminal prosecution.
Note: As long as a taxpayer that has willfully committed tax crimes (potentially including non-filed foreign information returns coupled with affirmative evasion of U.S. income tax on offshore income) self-reports the tax fraud (including a pattern of non-filed returns) through a domestic or offshore voluntary disclosure before the IRS has started an audit or criminal tax investigation / prosecution, the taxpayer can ordinarily be successfully brought back into tax compliance and receive a nearly guaranteed pass on criminal tax prosecution and simultaneously often receive a break on the civil penalties that would otherwise apply.
It is imperative that you hire an experienced and reputable criminal tax defense attorney to take you through the voluntary disclosure process. Only an Attorney has the Attorney Client Privilege and Work Product Privileges that will prevent the very professional that you hire from being potentially being forced to become a witness against you, especially where they prepared the returns that need to be amended, in a subsequent criminal tax audit, investigation or prosecution.
Moreover, only an Attorney can enter you into a voluntary disclosure without engaging in the unauthorized practice of law (a crime in itself). Only an Attorney trained in Criminal Tax Defense fully understands the risks and rewards involved in voluntary disclosures and how to protect you if you do not qualify for a voluntary disclosure.
Treasury Department Amends Initial Proposal for Bank Reporting Requirements
The U.S. government is making changes to an original plan that would heighten reporting requirements for U.S. banks. The initial plan, proposed in May of 2021, would require banks with U.S. account holders to disclose the total amount of money moving in and out of an account. These figures would have to be broken down according to whether the transaction involved a foreign entity and whether the same account holder controlled both the source account and the recipient. Any account with more than $600 of transactions would be subject to the reporting requirements proposed in May.
In response to widespread concern about the initial proposal, the Biden administration and the Treasury Department have now made changes to the proposal that would constitute a substantial step down from what was initially proposed in May. In the new proposal, the trigger for IRS reporting would come when more than $10,000 in transfers occur on a single account over the course of one year. The proposed $10,000 threshold would not take into account deposits of salary or wages. Banks would be able to round their reported figures to the nearest $1,000.
Banks are naturally bent on opposing this action. The American Bankers Association (ABA) has indicated that they will oppose any such measure, regardless of the recent changes, so long as the plan implements additional reporting requirements.
How Does the IRS Gain Access to Offshore Bank Records?
The IRS and U.S. Department of Justice have spent over a decade aggressively cracking down on unreported offshore bank accounts. What once seemed like private, overseas secrets are now targets for aggressive U.S. tax enforcement. Taxpayers who fail to report foreign accounts or income face severe consequences, from staggering civil penalties to potential life-changing criminal tax prosecution. In one notable case, a taxpayer was hit with over $800,000 in FBAR penalties for concealing a single Swiss account. In another, a Swiss bank whistleblower’s information led to a $780 million settlement and thousands of American account holders being exposed. The message is clear: offshore account reporting failures are severe, and the IRS has powerful tools to uncover hidden assets worldwide.
At the Tax Law Offices of David W. Klasing, our team of dual-licensed Tax Attorneys and CPAs has nearly two decades of experience helping clients navigate offshore disclosure and high-risk tax audit issues. We have witnessed firsthand the tactics that IRS investigators use to obtain foreign bank records, often when taxpayers least expect it. Our dual-licensed international tax lawyers & CPAs assist with FBAR- and FATCA-related issues, from foreign account tax audits and criminal tax investigations to tax planning for non-citizens. If you have questions about Form 8938, FinCEN Form 114, or other offshore filing requirements, contact us online for a reduced-rate consultation, or call us at (888) 904-4096 today.
FATCA & Form 8938 — How Global Banks Now Report You to the IRS
FATCA fundamentally changed offshore enforcement by requiring virtually every foreign financial institution (FFI) – including banks, funds, insurers, and trusts – to act as an IRS informant. Key features include:
Mandatory Reporting by Foreign Institutions
FFIs must identify and report U.S.-owned accounts or face a crippling 30% withholding tax on all U.S.-source payments. This includes disclosing account balances, owner identities, tax identification numbers, and gross earnings.
FATCA Letters
Many FFIs now send “FATCA letters” to American clients, requesting tax-ID numbers and explicit consent to share financial data. Failure to comply often results in account closure or severe restrictions on account use.
Individual Taxpayer Requirements
On the U.S. side, FATCA created Form 8938 (Statement of Specified Foreign Financial Assets), which must be attached to the federal tax return if a taxpayer’s specified foreign financial assets exceed threshold amounts:
Taxpayers Living in the United States
- Single Filers: More than $50,000 on the last day of the tax year or more than $75,000 at any time during the year.
- Married Filing Jointly: More than $100,000 on the last day of the tax year or more than $150,000 at any time during the year.
Taxpayers Living Abroad
- Single Filers: More than $200,000 on the last day of the tax year or more than $300,000 at any time during the year.
- Married Filing Jointly: More than $400,000 on the last day of the tax year or more than $600,000 at any time during the year.
Scope of Reportable Assets
Reportable assets extend beyond bank and brokerage accounts to encompass interests in foreign partnerships, corporations, trusts, pensions, and certain life-insurance contracts.
The Potential Penalties for Non-Comliance and/or Non-filing are Steep
- Initial Penalty: $10,000 for failure to file Form 8938.
- Continuing Non-Compliance Penalties: Up to $50,000 for continued non-compliance after IRS notice.
- Accuracy-Related Penalty: 40% on any unreported income connected to the hidden assets.
Importantly, Form 8938 is a Title 26 filing and does not replace the FBAR (FinCEN 114) under Title 31; many taxpayers must file both. Because foreign banks now transmit the same account details directly to the IRS under intergovernmental agreements, any discrepancy or silence on Form 8938 is a bright red flag to the IRS. In practice, FATCA has pierced the last veil of offshore secrecy – if you hold undisclosed foreign assets, assume the IRS either already has the information or will shortly.
FBAR, the Bank Secrecy Act, and Treasury Enforcement Powers
Long before FATCA, the U.S. had the Foreign Bank Account Report (FBAR) requirement under the Bank Secrecy Act (BSA). The FBAR rules, dating back to the 1970s (and enhanced by the USA PATRIOT Act in 2001), mandate that U.S. persons report foreign bank and financial accounts exceeding $10,000 in aggregate value by filing an FBAR each year. Unlike Form 8938, the FBAR (FinCEN Form 114) is not filed with your tax return – it is filed separately with the Treasury’s Financial Crimes Enforcement Network (FinCEN) by April 15 (with an automatic extension to October 15). FBAR reporting covers not only bank accounts but also foreign brokerage accounts, certain foreign retirement or pension accounts, and even accounts where you have signature authority only. The $10,000 threshold is low – it applies to the total of all your foreign accounts, so even relatively small accounts can trigger an FBAR filing if their combined balance exceeds the limit at any point in the year.
Although the FBAR is a Treasury/FinCEN filing under Title 31, the Treasury Department has delegated enforcement to the IRS, so examiners routinely review FBAR compliance during income-tax audits and impose penalties when filings are missing or inaccurate. Importantly, FBAR violations can lead to life-altering criminal tax charges. Willfully failing to file an FBAR is a felony under the BSA, punishable by up to 5 years in prison and fines up to $250,000 (or twice the amount of the funds in the account, in some circumstances). In reality, the IRS and DOJ often charge FBAR violators with related tax crimes (like tax evasion or filing false returns) rather than a standalone FBAR charge. However, the threat of criminal offshore information filing enforcement is very real, especially if offshore non-compliance is coupled with tax evasion. Notably, the IRS treats lying on your tax return’s Schedule B (which pointedly asks if you have a foreign bank account) as strong evidence of willfulness. Many taxpayers with undisclosed accounts check “no” on that box year after year, digging a deeper hole. Our firm has seen the IRS assert willful FBAR tax penalties – and refer cases for criminal tax investigation – based in part on that little checkbox alone.
In summary, the BSA and FBAR regime gives the U.S. government a direct line of sight into offshore accounts when taxpayers self-report. When they don’t, it arms the IRS with devastating penalties to punish those who fail to come clean. The IRS has made clear that offshore evasion is “aggressively enforced”, and every year we see more resources poured into identifying non-filers. Additionally, Treasury has other enforcement tools under the BSA. For example, U.S. officials can issue “Section 311” special measures to effectively blacklist foreign banks that facilitate illicit finance, and can subpoena records from foreign banks that maintain a correspondent account in the U.S. (a power given by the PATRIOT Act). In short, the era of anonymous offshore banking is over. Through required FBAR filings and broad Treasury powers, the government can access or compel production of offshore bank records even if the taxpayer attempts to hide them.
John Doe Summonses, Whistleblowers, and Offshore Leaks
The IRS has several powerful tools for uncovering offshore accounts, including John Doe summonses, whistleblower programs, and recent high-profile data leaks:
John Doe Summonses
These special enforcement tools, authorized under 26 U.S.C. § 7609(f), allow the IRS to seek information about unknown taxpayers from third parties like banks, trust companies, or couriers. A recent example includes:
Trident Trust Case (2024): A federal court authorized the IRS to issue John Doe summonses to U.S. banks and courier services like FedEx and DHL to identify U.S. taxpayers using offshore trust services provided by Trident Trust. This strategy targeted not just the trust company itself, but also the intermediaries that handled funds and documents, expanding the IRS’s reach.
Whistleblower Program
The IRS Whistleblower Office continues to offer significant financial rewards (10% to 30% of recovered amounts) for individuals who report tax evasion.
Offshore Data Leaks
In recent years, significant data breaches have provided the IRS with a wealth of information on offshore accounts:
- Pandora Papers (2021): Leaked financial documents exposed the hidden wealth of numerous global elites, including U.S. taxpayers, leading to ongoing IRS criminal tax investigations and prosecutions.
- Swiss Leaks (HSBC Geneva): Earlier leaks, like the Swiss Leaks, continue to provide the IRS with a roadmap for tracking undeclared accounts and financial networks that support tax evasion.
These tools have significantly weakened the veil of offshore secrecy. If you have undisclosed foreign accounts, the IRS has more ways than ever to identify your assets, even if you never directly received a summons or notice. When offshore non-compliance is willful or part of a larger tax evasion scheme, the IRS can escalate the matter to a criminal tax investigation. The IRS’s Criminal Investigation (CI) division – often working jointly with the DOJ Tax Division and U.S. Attorneys – has the authority to subpoena records, convene grand juries, and even execute search warrants to seize financial records. In a criminal tax and foreign information reporting fraud investigation, the full arsenal comes into play: agents may issue grand jury subpoenas to U.S. banks for correspondent account records that show transfers to or from foreign banks, or obtain copies of account applications you might have submitted.
How Does the New IRS Reporting Initiative Affect Bank Accounts in the U.S.?
Contained within the proposal are critical details that could impact how banks function going forward if passed. While the proposal does not include any additional taxes or tax increases, these additional measures may impact the way your bank handles your account.
Banks are already responsible for reporting interest income. The form that is used for this purpose, Form 1099-INT, would get a little bit longer. However, the government claims that spending data will not be collected through this form and that the requirement is limited to the sum of money that flows in and out of the account.
While the administration insists that the measure is intended to target upper-class tax evaders with opaque income streams from sources other than salary, opponents of the measure are wary of its impact on other taxpayers. Legislators on the opposite side of the aisle warn that the new reporting guidelines could be used to catch working-class taxpayers on honest mistakes. This would fit the pattern of previous behavior from the IRS, which actually targets lower-earning American taxpayers for audits at higher rates than higher-earning individuals.
With the prospect of this proposal becoming law in the future, banks face the difficult task of increasing oversight and generating more complex filings with the government. Satisfying these requirements will cost time and money. It should be expected that these costs will likely be passed on to the account holder. If the new plan is passed, you would be reasonable to expect to see bank fees hike to compensate for the extra legwork.
Supreme Court Confirms IRS Can Secretly Obtain Bank Records
While many taxpayers already suspect that the IRS has the power to access bank information, a recent Supreme Court decision in Polselli v. IRS puts those concerns on firmer ground. The unanimous ruling affirms that under certain circumstances, the IRS can issue summonses to financial institutions without notifying the affected account holders—even if those holders are relatives or associates of a taxpayer who owes the IRS money and they themselves do not owe any tax debt.
Background of Polselli v. IRS
- Facts: A taxpayer, Remo Polselli, owed more than $2 million to the IRS. The agency issued summonses to banks holding accounts in the name of Polselli’s wife and his law firm without notifying them.
- Legal Question: Can the IRS skip notifying third parties whose accounts might be probed during tax collection efforts (as opposed to tax determination or investigation)?
- Ruling: The Supreme Court held that notice is not required if the IRS summons is issued “in aid of the collection” of an assessed or adjudicated tax debt. The plain language of the relevant statute, 26 U.S.C. § 7609(c)(2)(D), does not limit this lack of notice to accounts legally controlled by the taxpayer alone.
Impact of the Decision
The ruling clarifies that if you owe back taxes, the IRS can legally investigate the bank records of third parties—including family members or business partners—without providing them prior notice. Critics argue this opens the door for more invasive IRS tactics. However, the Court emphasized it was interpreting straightforward statutory language rather than making policy choices. If you owe the IRS, the agency can and may use its summons power to locate assets and enforce collection—even if those assets are not in your own name.
“Collection” Versus “Investigation”
Under Polselli v. IRS, the Supreme Court reiterated that collection of a known tax liability (when the IRS has already assessed a debt) differs from investigation or determination of whether taxes are owed in the first place. For the latter, the IRS typically must notify the parties named in the summons. For the former (collection), the IRS can bypass the notice requirement if the records sought could aid in recovering overdue taxes.
Can the IRS Take Money from Your Bank Account Without Notice?
Although the IRS can obtain your bank records without notice under certain circumstances, levying funds directly from your bank account follows a different set of rules. Generally, the IRS cannot seize the money in your account without sending prior notices and giving you an opportunity to resolve the issue. Below is an overview of how the levy process works and what you can do to protect your assets.
The IRS Collections Process
- Initial Billing and Notices
The IRS begins by sending a bill for unpaid taxes, along with a notice explaining your options. If you fail to respond or make arrangements, you may receive additional notices or phone calls, and eventually, you could see a federal tax lien filed against your property. - Notice of Intent to Levy
Once a lien is in place and you have not addressed your tax liabilities, the IRS will send a CP405, Notice of Intent to Levy, alerting you that seizure of property or funds may occur if the debt remains unresolved. - Final Notice (Letter 1058)
At least 30 days before taking funds, the IRS typically issues a Final Notice of Intent to Levy (Letter 1058). This is your last chance to pay the overdue balance, negotiate a payment plan, or request a Collection Due Process (CDP) hearing. - Levy Execution
If you ignore the final notice, the IRS can serve a levy on your bank. Your bank is then required to hold the specified funds for 21 days before remitting them to the IRS. This window gives you a brief final opportunity to resolve the situation (for instance, by paying the debt or negotiating an installment agreement).
Wage Garnishments
In addition to levying your bank account, the IRS can garnish wages to satisfy unpaid taxes. An employer must withhold part of an employee’s paycheck and send it directly to the IRS. This is simpler for a typical W-2 employee—but for business owners paying themselves out of an S-corporation or LLC, it can become more complicated because you effectively must garnish your own wages. Failing to comply can lead to even more severe enforcement actions.
Options to Stop (or Prevent) a Levy
- Full Payment
Paying your tax debt in full before levy action begins is the most straightforward solution. - Installment Agreement
Set up a monthly payment plan with the IRS (Form 9465) to stop further collection action. - Collection Due Process (CDP) Hearing
If you receive a Final Notice of Intent to Levy, you have 30 days to request a CDP hearing using Form 12153. At the hearing, you may contest the amount owed or propose alternative arrangements such as an Offer in Compromise or an installment plan. - Appeals via the Collection Appeals Program (CAP)
If you believe the IRS took (or is about to take) funds from your account without appropriate notice, you can request a CAP hearing by filing Form 9423. Be mindful of short deadlines; for instance, you generally have only three business days after talking to an IRS collection manager to postmark your appeal.
What If the IRS Already Took Funds Without Notice?
If you honestly did not receive the required notices:
- Verify Missing Notices: Check if the IRS mailed notices to an old or incorrect address.
- Contact the IRS: Ask for a levy reversal, explaining you were never properly notified.
- Consider an Appeal: If direct communication fails, you can file for a Collection Appeals Program hearing. Acting quickly is crucial, as deadlines can be very short.
What Can You Do to Prevent Possible IRS Audits?
If the IRS is granted access to this new data directly from banks, the doors on potential civil, eggshell and reverse eggshell audits and criminal tax investigations will likely swing wide open, leaving tens of thousands of taxpayers exposed in a way they had not been before. If you are concerned about the prospect of a high-risk civil tax audit or far worse IRS-CID criminal tax investigation in light of these new developments in Washington, it would be wise proactively to protect your net worth and your very liberty.
One way in which you can defend yourself against a high-risk tax audit or criminal tax probe is through voluntary disclosure. Many U.S. taxpayers avail themselves of the government’s voluntary disclosure program every year. Essentially, the IRS is more likely to look favorably upon taxpayers who come forward voluntarily with additional information that modifies inconsistencies in past filings. By incurring this favor, disclosing taxpayers will ordinarily see their possible civil fines reduced and criminal exposure eliminated entirely.
Voluntary disclosure is a delicate process. If the government is already aware of the tax impropriety to be disclosed, the disclosure may hurt the taxpayer more than it helps. Never attempt to voluntarily disclose additional financial information to the government without first speaking to one of the dual-licensed Tax Attorneys and CPAs at the Tax Law Offices of David W. Klasing. Whether you are already facing an audit or are concerned about an IRS criminal tax investigation’s special agent showing up at your door in the future, we urge you to reach out to us today for help.
As uniquely qualified and extensively experienced Criminal Tax Defense Tax Attorneys, KovelCPAs and EAs, our firm provides a one stop shop to efficiently achieve the optimal and predictable results that simultaneously protect your liberty and your net worth. See our Testimonials to see what our clients have to say about us!
Bottom Line: Managing IRS Debts and Avoiding Summonses
The Polselli ruling illustrates how aggressively the IRS can pursue overdue tax debts. If you owe taxes, it is wise to work out a payment plan or installment agreement before enforcement escalates to forced collection activities or summonses. The IRS offers several options, including short-term (up to 120 days) or long-term (monthly) payment plans, based on how much you owe. Businesses owing under $25,000 in certain circumstances can stretch payments over 24 months or more.
Proactive compliance—including prompt filing of delinquent returns and disclosure of any undisclosed income—can help you avoid forced collections and potential intrusion into your bank records (or into the accounts of your associates and relatives). If you cannot pay in full, it is generally best to contact the IRS to arrange an installment agreement rather than ignore the problem and risk a full-blown enforcement action.
Want to Learn More About the Impact of IRS Access to Your Bank Account? Call Us Today
From expanded bank reporting proposals to the Supreme Court’s affirmation of secret IRS summonses in Polselli, the federal government’s powers to identify and collect unpaid taxes are increasing. Protecting your financial privacy and avoiding severe enforcement measures means taking proactive steps—whether that involves voluntary disclosure, negotiating a payment plan, or seeking professional legal and tax advice. If you have failed to file a tax return for one or more years or have taken a position on a tax return that could not be supported upon an IRS or state tax authority audit, eggshell audit, reverse eggshell audit, or criminal tax investigation, it is in your best interest to contact an experienced tax defense attorney to determine your best route back into federal or state tax compliance without facing criminal prosecution.
At the Tax Law Offices of David W. Klasing, our dual-certified tax lawyers and CPAs stay current on developments in tax legislation so that our clients remain protected. Working with our experienced dual-licensed Tax Attorneys & CPAs can provide the guidance and peace of mind you need as you navigate the challenges of coming back into compliance with the U.S. Tax Code. Working with a tax attorney can help you better understand the risks you face and your potential pathways to mitigate the consequences and penalties you face. Call our offices at (888) 904-4096 to schedule your first reduced-rate initial appointment here.
