For decades the US Department of Justice (DOJ) has investigated and prosecuted individuals for violations of the Foreign Corrupt Practices Act (FCPA) and other US federal laws with an extraterritorial focus, even if the conduct transpired outside the United States.  For experienced people doing business across borders, that is not a new topic.  However, what may be unknown to some executives, entrepreneurs, and others is the possibility of also running afoul of the US Internal Revenue Service (IRS) and DOJ Tax Division.

Many corporate executives in China, India, and elsewhere studied at universities in the United States and obtained US citizenship or permanent resident status before returning to their native country to start their own business or to rise up the ranks at an existing company.  There are also many native-born Americans working and living overseas.  This is notable because US citizens and permanent residents are subject to US federal income tax on their worldwide income no matter where earned.  In the author’s experience, having practiced in Hong Kong for several years, this reporting obligation has not historically been widely understood by many expats.  IRS enforcement mechanisms, such as the Foreign Account Tax Compliance Act (FATCA) and tax information exchange agreements, are improving but there is still a very large “tax gap” of unreported tax liability.  Some expats living abroad gamble that the IRS will not uncover their noncompliance, while others are simply unaware of or confused about their reporting obligations.…

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