Expats, the IRS has been actively monitoring facebook since 2013. The same goes for the FBI and a number of other 3 letter agencies. If you’re under audit, you can be sure that the IRS agent will read through your Facebook, Instagram and other posts.
In years past, most IRS agents had no idea how to access your social media account. Now, in 2017, they’ve been sufficiently trained and use social media as a quick way to learn about their target without leaving the office.
One reason for the IRS’s focus on social media is that it’s a cheap way to find high value prospects. The Service had its budget cut by $900 million last year. This is in addition to the wave of cuts over the last few years from Republicans upset by the their targeting of conservative groups during the Obama administration.
Now, President Trump plans to cut another 14%. Per the NY Times, this would reduce the agencies budget to $9.65 billion, down from $12.1 billion six years ago.
With IRS staffing down about 30% since 2009, audits have gone down dramatically. Likewise, the number of cases assigned to each auditor has gone up. They’re under ever increasing scrutiny to produce… to bring in money and land only the biggest fish.
And Expats are at the top of the list when it comes to audits. Americans living and working abroad generate about 10 times more in taxes and penalties from audits than average W-2 earners.
Also, the penalties for failing to file your forms properly can be significant… far more than any penalty assessed against those living in the States. For example, the IRS can now assess penalties in excess of $100,000 per volatilization for failing to file an FBAR or for missing an account on the form.
Per the IRS website: “For penalties that are assessed after August 1, 2016, whose associated violations occurred after November 2,2015, the IRS may assess an inflation-adjusted civil penalty not to exceed $12,459 per violation for non-willful violations that are not due to reasonable cause. For willful violations, the inflation-adjusted penalty may be the greater of $124,588 or 50 percent of the balance in the account at the time of the violation, for each violation. For guidance on circumstances, including natural disasters, that prevent timely filing of an FBAR, see FIN-2013-G002 (June 24, 2013).”
The IRS originally created these draconian penalties to force Americans to keep their cash in the country. Today, they’re used by overworked agents to maximize the return on their audit hours.
American Expats should not take comfort in the falling audit numbers. The more stress the agent is under to produce, the more they’ll be looking to extract when an Expat comes across their desk.
- If you have unreported offshore accounts, or have gotten out of compliance for one reason or another, please take a read through: IRS Offshore Voluntary Disclosure Program for 2017.
With this in mind, US Expats should always be preparing to battle the IRS. Expect and plan for an audit. Be ready for the government to target you and have all of your documents ready to go. If selected for audit, know that you’ll get the agent’s full attention and that his only objective is to separate you from as much of your money as possible.
You must remain diligent in your social media posts. If the agent can show you don’t qualify for the Foreign Earned Income Exclusion, he can tax you on $100,000 in salary plus all kinds of interest and penalties. If he hits you for multiple years, your bill can reach $300,000 and he has another pelt for his wall.
For review, The FEIE allows you to exclude up to $102,100 in business income or salary from Federal taxes in 2017. To qualify, you must be out of the US for 330 out of 365 days or a resident of a foreign country and out of the US for 7 months or more in a calendar year.
Income earned while you’re working in the US is taxable by the IRS and income earned while working abroad qualifies for the Exclusion. Also, if you don’t have an offshore corporation, you will pay 15% in Self Employment tax on your business profits.
All of these components of the FEIE mean that an IRS agent wants to maximize the number of days you’re in the United States. Then he’ll attempt to show that the work to generate the income was done while you were in the US and thus not eligible for the FEIE.
Also, if you’re using the 330 day test and are off by even 1 day, you’ll lose the entire exclusion. The FEIE is not prorated if you are out of the US for 229 days… you lose it entirely.
- I always recommend Expats get residency in a foreign country. The easiest is Panama, but any country that won’t tax you will do. For more on Panama, see: Best Residency by Investment Program.
For these reasons, you must watch your social media posts closely. The IRS will search you online and has access to anything and everything you post. Don’t assume your posts and chats are private. Know they’ll be used against you in an audit.
Use your social media posts to support your claim of the Foreign Earned Income Exclusion or your social media account will be a liability. Which it will be (asset or liability) will depend on what you post each and every day.
You must remain diligent!
First, don’t assume that you’ll will have notice before you’re audited. The IRS agent will go through all of your accounts BEFORE contacting you. They’ll print out anything that they might be able to use against you later.
Second, only post about things that happen in your country of residence. If you’re close on your 330 travel days, don’t post about visiting the US. You might include Christmas with the family, but nothing on business trips to America.
And, remember that residency requires you become a part of the community. To move to a country like Panama and make it your home for the foreseeable future. You should post about social events, church, charitable activities, and anything that shows you’ve broken ties to the US and maximized relationships in your new home country.
Third, never write about your plans to return to the US or about being homesick. Never post, “hey, on my way to Panama on a two year adventure!” or, “thank god, only 1 more year to go in this dump!” These would greatly undermine your claim that you moved to the country for the foreseeable future and don’t plan to return to the US.
- Expats on temporary assignment in a country are not residents. Even if they stay 2 or 3 years, they’re not residents for US tax purposes. They must use the 330 day test and not the resident test to qualify for the FEIE.
This is another reason I recommend a Panama visa. If you enter on a temporary work permit, you probably won’t be considered a resident by an IRS auditor. If you enter on a general visa, such as the Panama reforestation visa, the agent has less evidence to challenge you on.
Fourth, never talk about cash transactions or how well you’re doing financially on social media. This is absolutely the worst thing you can post!
Your success can be taken as a challenge by an IRS agent. He’s a single dude stuck in his one bedroom apartment eating ramen while you’re living it up. Also, I guarantee your posts of cash transactions and success will be front and center when the IRS targets you for not reporting all of your income.
Lastly, please dear god don’t post pictures of you doing anything illegal! Cases start out as audits and get referred to the FBI and other agencies. For example, Felon Sentenced to Prison After Posting Pictures of Himself With Guns To Social Media.
The point is that American Expats are targets. If an IRS agent can get to you, they will. If you land on their desk, you’ll get all of their attention. The agent will target you because you have money to pay and the fines and penalties they can hit you with are major.
I hope you’ve found this article on why Expats must watch their social media footprint to be helpful. For more information, please contact us at firstname.lastname@example.org or call us at (619) 550-2743. We’ll be happy to assist you to structure your affairs abroad in a tax compliant manner and to connect you with audit defense experts.
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