I have been asked to survey how many banks would file a SAR for EVERY time a loan officer hears, "Now you know we don't report all income" when taking a loan application. This would technically be suspected Tax evasion. One loan officer said we would file on every small business application we take? There would be no documentation to back it up, just an "admission".

IMO - The loan officer should respond and say that the Bank cannot consider income that is not reported and leave it at that.

However, if the business owner provides "shadow" financial statements showing income that is not on their tax returns, then you have an issue because they are attempting to use the Bank as part of their tax evasion.

Princess Romeo's advice is solid, but the survey you have been asked to conduct is interesting. Is it possible that the people who commissioned the survey are assuming that NOBODY would file EVERY time a borrower suggests he or she might be cheating on his income taxes; i.e. is that the result they want you to come back with?

It's a "suspicious" activity report and your suspicions are not dependent on documentation. Your customer's statement is "against penal interest" and is pretty persuasive in and of itself. He's either lying to you or he's lying to the IRS.

I would not say your bank has to file a SAR every time this happens. However, I would say you have to consider it and write an explanation as to why the bank decided not to. The wording may be difficult.

As some may be put off by posting bank/personal policy on this subject

I set up a poll

If you had some way of knowing that 1) the suspicious activity was conducted at or through your bank and 2) that it involved at least $5,000 then you would be required to report. I'm not sure that you would know either of those things just from the statement that you mentioned. Obviously, though you can always voluntarily file even if the activity doesn't make it a required filing.

Actually this question is as old as SAR reporting, or at least as old as the ramped-up efforts on BSA circa 2002.

Yes, we all know that businesses may not report every cash receipt they receive. If we file SARs every time someone said that, or joked about it, we'd be filing a ton of SARs and I don't know that it would really accomplish much other than to provide the IRS with a larger list of potential audits.

Meanwhile there are funds being laundered from illicit operations such as narcotics sales, human trafficking, counterfeit goods, and Medicare/Insurance fraud.

I don't know that I'm all that thrilled knowing that we might be paying less attention to the real criminal activity just because some small business owner decides to say something stupid to a loan officer.

I think the thought process here is the same as the majority on here. The survey question came from.... We don't want to be the only institution taking that strong a stand and filing every time if no one else is, because like Princess said, it would pretty much overwhelm the system and would it help or take away from the "real" stuff. At the same time, we want to do what is right and they want to be told every time someone makes a statement that could be structuring. I think there is a fine line sometimes in what is really going to "help" and what is just defense filing. We have filed on blatent tax evasion, even though it might not be "documentable". If we filed on stupidity........ they better hire more people to read the SARs!
Thank you to EdAudit for setting up the survey tool. You rock!

I have filed a SAR for tax evasion in the past, and would again, if someone said that to a loan officer.

So would I, unless I knew them well enough to know for certain it was a joke. Tax evasion is one of those issues that really aggravates me. I may not want to, but I pay all my taxes (even on internet purchases), and you come in and tell me how you're committing a crime by not paying yours in order to try to secure a loan from my bank?? Luckily, I'm not a LO, so I don't have to deal with it directly, but I do process IRS levies all the time... and the volume of levies we receive seems to increase every month.

ETA: My job doesn't actually include filing SARs, so I wouldn't really be able to do so, as I erroneously implied above.... I just really don't like tax cheats... and I especially don't like those companies that advertise on TV about how they'll help tax cheats only pay a "fraction" of what they actually owe the IRS. [/rant]

The trouble with filing for tax evasion (as a stand alone) is connecting it to activity at or through the bank. Tax evasion is about something not happening somewhere else.

Shadow accounting documents would represent loan fraud rather than tax, since they use fraudulent information to support a loan application. Now, if the shadow documents represent the truth, and the IRS received different documents to support a bogus story, then the fraudulent activity didn't take place at or through the bank. The best course of action is to simply not rely on unreported income. If you're given income documents that differ from what was provided to the IRS, treat them as fraudulent.

I also think it is noteworthy that the revised SAR form still doesn't include tax evasion among the types of activity. Sometimes, we bankers become our own worst enemies by overthinking SAR filing.

And the difference is - Tax Evasion is not a predicate crime for money laundering. It's actually the other way around.

I can document a really compelling argument for why suspected income tax evasion is not reportable on a SAR. While I think my analysis is far more persuasive, FinCEN does not agree.

Unfortunately, theirs is the only opinion that matters.

FinCEN made a conscious decision not to put "income tax evasion" as a check box on the Form 111 because (per a FinCEN contact) the law does not allow the overt use of the BSA filing system to solicit information regarding income tax evasion. Regardless, the IRS certainly uses the data base to look for income tax evasion; the IRS submits more queries to the BSA forms data base than all law enforcement agencies combined.

If an applicant's statement that he underreports his taxable income is intended to affect a lending decision there is no argument that the bank is not involved. As noted above, the applicant is either lying to the bank or lying to the IRS. Life is not long enough to spend any time figuring out when a known liar is lying or is telling the truth. There really is no moral dilema involved in filing a SAR in this circumstance.

While many may not automatically file a SAR, I would hope that every loan officer would be trained to recognize that statement as a red flag warranting additional investigation (PRIOR to making the loan).