A Tax Law Passed In 2010 That May Impose Taxes On Money Sent To Scammers!

Updated August 12, 2021

It May Require That You Pay Taxes On Money Scammed From You!

The Foreign Account Tax Compliance Act (FATCA) 2010 is an initiative of the United States Government to promote tax compliance and uncover tax evasion by its citizens/residents and US-owned (legal) entities.

The Act requires that Foreign Financial Institutions (FFIs) provide information to the United States Internal Revenue Service on monies received or accounts maintained for citizens/residents of the US outside the U.S.

For Americans who hold assets with foreign institutions, for whatever reason, the tax ramifications are an area of serious concern. The Internal Revenue Service (IRS) treats money held in foreign banks differently than money held in domestic bank accounts. To put it bluntly, they don’t like U.S. citizens having offshore or overseas accounts—mostly out of fear of being unable to take revenue from such accounts—and so they discourage the practice.

Consider This Scenario

A scammer has you send money to them. To hide the money from their local government they open a bank account in your name working with a corrupt banking employee! Yes, this happens all the time! The scammer has control of the account and runs money in and out of it.

Most countries report U.S. account holders to the IRS. The IRS becomes aware of this and demands that the 30% tax be paid of money that was actually scammed from you. While you can defend yourself on the basis that this was a scam, you have to defend yourself. That involves hiring a tax attorney and dealing with a potentially hostile IRS. This is especially a problem if the crime was not properly reported to law enforcement.

The Details

As stipulated by FATCA, a 30% Withholding Tax will be imposed on US-sourced income paid to any FFI if the FFI fails to comply with FATCA or on an account holder that fails to provide information to determine whether or not they are a US taxpayer (such an individual/institution is termed a Recalcitrant account holder).  If the 30% is not imposed, the U.S. Citizen or Resident is responsible for that payment to the IRS.

In compliance with this Act, Foreign Financial Institutions are required to provide information to the United States Internal Revenue Service on individual and corporate customers who qualify based on the following criteria:

Corporate Customers, who are:

•  Individual shareholders who qualify under the above conditions and with a minimum of 10% shares in companies who execute transactions with a foreign bank
•  Corporate organizations incorporated in the United States with a minimum of 10% shareholding in companies execute transactions with a foreign bank.

 Individual Customers, who:

•  Are US citizens, have a US passport or green card
•  Have US place of birth
•  Have US residences or mailing address
•  Have US telephone numbers
•  Have standing instructions to transfer funds to US-based accounts
•  Have Power of attorney or signatory authority granted to a person with a US address; or
•  Are in care-of or hold mail addresses that are the sole address of account holders

The IRS has indicated that money sent via Western Union or Money Gram may qualify for this withholding.  Additionally, money sent for the purpose of evasion of taxes, such as to receive a cash payment from a foreign bank may be considered criminal evasion as well.

Receiving Money

If the scammer has access to your U.S. bank account and is moving money in and out through it, this may also trigger this plus additional penalties for money laundering.

Additionally, few may know this, but a U.S. citizen or resident that sends money to a foreign criminal entity may also be charged with being an accessory by the U.S. Department of Justice.

Be Careful

• Any U.S. citizen with foreign bank accounts totaling more than $10,000 must declare them to the IRS and the U.S. Treasury, both on income tax returns and on FinCEN Form 114.
• The Foreign Account Tax Compliance Act (FATCA) requires foreign banks to report account numbers, balances, names, addresses, and identification numbers of account holders to the IRS.
• The federal government can bring civil and criminal charges against those who fail to disclose foreign accounts or pay taxes on foreign account assets.

The issue is: What did the scammer do with the money? Did they connect it to you?

As with all such issues, we recommend that you contact a qualified financial professional or attorney to review your situation and help you develop strategies to avoid these issues.

The Long And The Short Of This Is?
Don’t Send Money!

If you did send money report this to the police so you have a legal record of the criminal activity!

We recommend careful record-keeping of your scam so that if there are ever complications, you have the information that you need. SCARS publishes its RED BOOK Scam Information Record Organizer available from the SCARS Store.