IRS Audits for NRIs: Key Triggers and Compliance Tips

(INDIA) As tax season approaches for Americans overseas, U.S. citizens, Green Card holders, and tax residents in India face a steady rise in scrutiny of foreign income and assets. While an IRS audit remains uncommon, auditors often focus on missed foreign account reports and asset disclosures. For Non-Resident Indians (NRIs) and other expats, two filings stand at the center of most problems: the FBAR and Form 8938. Both target offshore accounts and investments, and both can trigger painful penalties if ignored or filed late.

The Internal Revenue Service has increased its focus on cross-border money flows, aided by data from banks and treaty partners. For taxpayers living between the United States (🇺🇸) and India (🇮🇳), the message is simple: if your foreign accounts cross key thresholds, or your filings don’t match your financial footprint, the chance of an IRS audit rises sharply. According to analysis by VisaVerge.com, missed reports and inconsistent foreign income claims consistently appear in enforcement cases tied to Americans abroad.

Common audit triggers for expats

The most common flags for residents overseas involve foreign assets and how they’re reported on U.S. returns. Key triggers include:

• Not filing FBAR (FinCEN Form 114) when foreign accounts exceed $10,000 in total at any time during the year. This applies to bank, brokerage, and similar accounts. The FBAR is filed through FinCEN, not with your tax return. You can find official details and e-filing information here: FBAR (FinCEN Form 114).
• Not filing Form 8938 when your specified foreign financial assets pass the higher overseas thresholds for expats:
  • Single filers living abroad: $200,000 on December 31 or $300,000 at any time during the year.
  • Married filing jointly overseas: $400,000 on December 31 or $600,000 at any time.
  • Form and instructions: IRS Form 8938.
• Large or unusual Foreign Tax Credit claims, especially those over $50,000 or not consistent with your reported income.
• Income or lifestyle that doesn’t match the return, including big swings in income without clear explanations.
• Large deductions or losses while living abroad, particularly aggressive business write-offs.
• Digital asset activity (holding or trading virtual currency) that isn’t reflected on filings.

Real-world example: Priya’s case

Priya, a U.S. citizen living in India, kept an NRO bank account with a balance of $250,000 and earned $20,000 in rental income from a flat in Mumbai. She failed to file both the FBAR and Form 8938 for 2024 and did not report all of the Indian rental income on her U.S. return. In 2025, the IRS sent her a letter proposing an audit. The reported triggers: a large foreign account and omitted income tied to India.

What Priya must do now:
1. Back-file the missing forms (FBAR and Form 8938).
2. Amend and correct her U.S. tax return to report the omitted income.
3. Explain late filings using a reasonable cause statement if applicable.

Potential penalties and risks:
– FBAR non-willful penalty: up to $12,921 per violation.
– FBAR willful penalty: can be much higher and may include criminal exposure.
– Form 8938 non-filing penalty: starts at $10,000, rising up to $50,000 for continued failure after IRS notice.

Priya’s situation is common among families split between the United States and India. Local savings for rent deposits, parents’ care, education fees, or investments in property and mutual funds frequently exceed reporting thresholds even for taxpayers with modest daily expenses. When a filing year is missed, paperwork can snowball and trigger an IRS audit letter.

Why enforcement is increasing

Compliance in India is changing: banks share more data than in the past, and global transparency has grown. Quietly keeping funds offshore has become harder.

This affects U.S. persons in India in two major ways:
– The odds increase that the IRS will learn about large Indian accounts.
– Gaps in reporting become more obvious when numbers don’t match across forms.

Despite the increase in data sharing, audits remain less frequent for taxpayers who meet core overseas reporting duties, keep clean records, and avoid inconsistent claims. Most audited taxpayers show a pattern: missed FBAR, skipped Form 8938, and foreign income that doesn’t match lifestyle or bank flows.

How to “do it right”

Good compliance is straightforward and focuses on documentation and consistency:

• File the FBAR and Form 8938 on time when required.
• Keep clear records: bank statements, year-end balances, currency conversion sheets, and proof of foreign taxes paid.
• Ensure that claims for the Foreign Earned Income Exclusion or the Foreign Tax Credit are supported by facts and documentation.
• Reconcile accounts and exchange records so numbers on your return match external statements.

If the IRS opens an audit, act quickly and comprehensively. A strong response usually includes:
– Bank and exchange statements.
– Copies of property leases.
– Proof of tax withheld in India.
– A clear, honest reasonable cause statement if filings were late.

Consider the Streamlined Filing Compliance Procedures if you missed filings unintentionally and want an orderly way to fix past years.

Practical steps to reduce audit risk

A few consistent practices lower the chance of an IRS audit and ease the path if one happens:

• File core forms: Submit the FBAR and Form 8938 if thresholds are crossed.
• Match the numbers: Reconcile foreign bank statements and exchange records with reported amounts.
• Keep simple files: Retain foreign income proof, rent agreements, and tax receipts for at least three years.
• Be consistent: Apply rules for exclusions and credits properly and document eligibility.
• Respond well: If the IRS writes, reply on time, keep copies, and explain delays with facts.

Important: FBAR non-willful penalties can hit $12,921 per violation; willful penalties can be far higher. For Form 8938, penalties start at $10,000 and can reach $50,000 for continued non-filing.

Add the cost of amending returns, possible back taxes, and family stress, and handling these forms early is clearly the better path.

Resources and closing guidance

Many U.S. persons in India support parents, invest in property, or keep savings for currency swings. Those decisions are normal and often wise — but they bring U.S. reporting duties that cannot be skipped.

Practical starting checklist:
– Check whether your aggregate foreign accounts crossed $10,000 at any time during the year. If yes, FBAR applies.
– Review specified foreign financial assets to see if Form 8938 thresholds apply.
– When in doubt, consult the official instructions or a professional familiar with expat filings.

Official references:
– IRS – International Taxpayers
– IRS Form 8938
– FBAR (FinCEN Form 114)

Priya’s case illustrates what happens when steps are skipped: a single year of missed filings and unreported rent led to an audit notice, back-filing, explanations, and possible penalties. Her story is a reminder — not a verdict: many expats who act quickly, file correctly, and keep honest records close out cases without lasting damage.

In sum, the aims are simple: file the FBAR and Form 8938 when required, keep clean and simple records, and ensure your U.S. return reflects life on the ground in India. That approach reduces audit risk and protects savings set aside for family, education, and a future across two countries.