THE FREQUENT FILER

The Internal Revenue Service (IRS) and the Financial Crimes Enforcement Network (FinCEN) play critical roles in safeguarding the U.S. financial system. By working together, these agencies combat financial crimes such as money laundering, tax evasion, and terrorist financing. Their partnership ensures compliance with laws designed to promote financial transparency, including the Bank Secrecy Act (BSA) and more recent regulations, like Beneficial Ownership Information (BOI) reporting.

While the IRS primarily focuses on tax enforcement and compliance, FinCEN leads efforts to detect and prevent financial crimes. Their shared responsibilities often overlap, particularly in areas like foreign asset reporting, monitoring large or suspicious financial transactions, and now, BOI reporting, which adds another layer of transparency to the financial system.

A cornerstone of their collaboration is the oversight of foreign asset reporting. FinCEN administers the Report of Foreign Bank and Financial Accounts (FBAR), which requires U.S. persons with financial interests in foreign accounts exceeding $10,000 to file annually. The IRS enforces compliance with these requirements, imposing penalties for noncompliance. Similarly, under the Foreign Account Tax Compliance Act (FATCA), taxpayers must report foreign financial assets on Form 8938. While these reporting requirements are distinct, they work in tandem to deter financial crimes and ensure tax compliance.

In addition to monitoring foreign assets, FinCEN and the IRS oversee the reporting of large and suspicious financial transactions. Financial institutions must file Currency Transaction Reports (CTRs) for cash transactions exceeding $10,000 and Suspicious Activity Reports (SARs) when they identify unusual or potentially fraudulent activity. FinCEN collects and analyzes this data, which the IRS uses to investigate tax fraud, undeclared income, or illegal financial schemes.

The growing emphasis on transparency has expanded beyond traditional reporting mechanisms to include Beneficial Ownership Information (BOI) reporting, a new requirement under the Corporate Transparency Act (CTA). FinCEN now requires most small corporations, LLCs, and similar entities to report their beneficial owners—individuals who exercise significant control or own at least 25% of the entity. This measure aims to prevent criminals from exploiting anonymous shell companies for illicit purposes, such as money laundering or tax evasion.

The IRS benefits from BOI reporting as it provides another tool for identifying fraudulent schemes and tax evasion involving closely held entities. For example, BOI data can help trace the actual owners of entities involved in questionable transactions, tying together information from FBARs, FATCA filings, and other financial disclosures.

Both agencies rely on advanced technology and data analytics to manage these reporting obligations. FinCEN’s database houses vast amounts of financial and ownership information, which the IRS accesses to identify noncompliance. This collaboration allows them to spot red flags, such as undisclosed foreign accounts or hidden beneficial owners, and pursue further investigation through the IRS’s Criminal Investigation (CI) division.

Penalties for failing to comply with these reporting requirements are severe, highlighting the importance of adhering to financial transparency laws. The IRS imposes significant fines for FBAR violations, while FinCEN levies penalties for noncompliance with BOI reporting and other BSA obligations. Together, these enforcement actions ensure accountability and deter illicit activity.

The addition of BOI reporting to the regulatory landscape demonstrates the government’s commitment to greater financial transparency. By requiring businesses to disclose their beneficial owners, FinCEN and the IRS are closing loopholes that previously allowed bad actors to exploit anonymous entities. This effort not only strengthens the fight against financial crimes but also bolsters the integrity of the U.S. financial system.

Through their collaboration, the IRS and FinCEN create a more transparent and secure financial environment, ensuring that individuals and businesses operate within the law. The integration of BOI reporting adds another critical layer to this effort, making it harder for criminals to hide and easier for the government to protect the economy. As these measures evolve, the partnership between the IRS and FinCEN remains vital in maintaining public trust and promoting financial security.