Signs You’re Going Away For Tax Fraud

Uncle Sam is watching us expats closer than those at home

Here are 11 factors the IRS and the U.S. courts look at to determine if your actions demonstrate fraudulent intent with respect to U.S. income taxes. If your factual situation involves items listed below it’s time to take action to protect yourself, as the civil and criminal penalties for tax fraud can be extreme.

Do any of these look familiar to you?

Understating income or overstating expenses,

Maintaining inadequate  or no written records,

Implausible or inconsistent explanations of behavior,

Concealment of income or assets,

Failing to cooperate with tax authorities,

Engaging in illegal activities,

Lack of credibility of the taxpayer’s testimony,

Filing false documents,

Failing to file tax returns intentionally,

Failing to make estimated tax payments, and

Dealing in cash and using offshore accounts


Your  background, level of education, and relative business sophistication are also relevant considerations, as they indicate to the IRS whether your actions are willful or unknowing. The IRS policy is to attempt to be benevolent to those who come forward first, (before being discovered by the IRS). If the IRS discovers you tax transgressions first, their agents are instructed to throw the book at you. 

The excuse that you live abroad and did not know you had to still file a U.S. tax return is wearing out fast, and is unlikely to work for more than a few more years.

Currently the IRS has the Streamlined Program and Offshore Disclosure Program which will allow you to voluntarily surface with the IRS, reducing or eliminating some severe penalties and maybe avoid criminal prosecution. The IRS has stated these programs will not continue indefinitely and may be terminated at any time. You need to take advantage of these programs before it is too late.

When you chose a tax professional to assist you, remember that there is no privilege between Enrolled Agents, CPAs and their clients in most states. The IRS can force them to testify about anything you tell them.  If you use an attorney, everything you state is protected by the absolute privacy of attorney-client privilege, which we’ve all learned about on Law & Order.  Neither the IRS or the courts can force an attorney to reveal anything you tell them.

Don D. Nelson is an Attorney at Law who had been assisting and advising clients in Mexico on U.S. taxes for more than 24 years.  He also is a partner in a CPA firm specializing in expatriate and international taxes.  His email is  Visit his website at U.S. phone 949-480-1235 and phone in Los Cabos 624-131-5228.