IRS Nationwide Enforcement Escalation: Cross-Border Business Owners Should First Review These 3 Accounts

The risk cross-border business owners should watch is when the company books, payroll taxes, and related entities cannot tell the same story.

10 14,the United StatesDepartment of Justice announced the results of a nationwide tax enforcement initiative involving 76 defendants, with estimated tax losses exceeding 4.9 billion dollars.

After reading the announcement, what first came to mind was not the scale of the cases, but the 3 types of transactions on cross-border business owners’ books that are most likely to conflict.

This enforcement initiative ran from early 9 through 10 14, lasting about 6 weeks. Prosecutors brought new charges in 23 cases, involving 31 defendants.

During the same period, about 39 cases proceeded to trial, guilty pleas, or sentencing. An indictment or charge does not mean a conviction; defendants are presumed innocent unless and until convicted in accordance with the law. What you can do now is identify conflicts in your own books first.

The announcement focused on alleged intentional fraud; it does not mean that ordinary bookkeeping errors will all lead to criminal investigations. However, if errors remain uncorrected for a long time, they may still result in additional taxes, interest, or civil penalties.

When I review these kinds of books, the first thing I do is look at several companies together. If it is unclear who receives the money and who bears the costs, the books and tax returns will eventually fail to match.

If money moves back and forth between a U.S. entity and a foreign related party, I also ask two questions: Were all required forms filed, and was the basis for the transactions documented?

If you are seeking financing, preparing for an IPO, or responding to an investigation in the near future, it is even more important to review the different sets of books together. When books and returns have been in conflict for a long time, explanations only become more costly.

First review personal expenses paid by the company for the owner or family members, then shareholder loans, distributions, and reimbursements. There should be supporting documents, and the filings should be consistent too.

In a pending case, prosecutors allege that funds from a business and companies controlled by family members were used for personal expenses, and that the related payments were not reported as income.

The issue is not whether a company can pay on someone’s behalf. The issue is what the money actually represents and whether the books and filings tell the same story. Payroll records, W-2, Form 941, and actual tax payments should generally reconcile with one another. In situations such as an acquisition or merger, or payroll paid by a third party, any differences should also be explained in the relevant filings and supporting workpapers.

[IRS guidance](https://www.irs.gov/forms-pubs/about-form-941)

One adjudicated case in the announcement: a business issued employees W-2 forms but did not file them with the Social Security Administration or pay the corresponding payroll taxes. This was not an ordinary data-entry omission; the Department of Justice stated that the defendant had pleaded guilty and been sentenced.

First determine whether your issue is an error, an outstanding debt, or deliberate concealment; these are not the same thing. For companies, individuals, family entities, or trusts, who owns the income? Why did the money move this way? The answers must be supported by genuine business activity and workpapers.

The announcement listed pending cases involving alleged sham trusts, false credits, and refund claims, as well as cases resulting in guilty pleas or convictions. Companies, individuals, and trusts may each have legitimate arrangements. The key is whether the flow of funds, contracts, books, and tax returns can substantiate the same set of facts.

When we take on this kind of matter, we first list the entities, general ledgers, tax returns, and fields to be checked. After reviewing each document, we conduct a due diligence interview. We clarify each company’s ownership, who receives the money, and why it moves in that way, then assess whether the books, supporting documents, and filings reconcile.

These 3 types of transactions can be reviewed side by side:

The most difficult issue in the table is not an error on a single form; it is several companies each telling a different story. If there are long-standing money flows between several companies and you cannot explain what each transaction represents, these 3 accounts should be reviewed first.

Do not rush to amend the books or file additional returns yourself. First clarify the facts, then send us the list of U.S. company entities and the general ledger for the most recent year. We can first help identify the three types of accounts that should be reviewed as a priority.