Borrower has a loan with us and has made all payments as agreed. Borrower brings in copy of his filed tax return for the purposes of annual loan review which shows less reported income than that which can service his total debt. Is this SAR reportable?

TIA!

I don't see where this would be suspicious. Is the borrower self-employed and maybe had a slow year or more expenses?

Well, he either lied to you on the loan app or he lied to the IRS on the income tax return didn't he? Either is reportable.

Considering the possibility that the loan might well be classified by a third party reviewer based on the borrower's lack of capacity to repay, it appears someone needs to have a discussion with the borrower. There, you will probably learn which box to check.

As this is the annual review it is possible that the customer had an off year and the original app. is correct. From the Op I can not determine how old this loan is. Could you go back to the original documentation (app and tax returns)to deterimine if there was a issue when the loan was first applied for. Either way someone needs to have a converstaion with the customer.

We agree on the essential nature of the conversation, but just want to make certain you noticed the discrepancy is not just the difference between what's shown on the application versus that shown on the tax return:



According to his tax return he does not make enough money to make his loan payments, let alone live. If he is paying as agreed he's either eating his liquid assets or he is lying to the IRS.

Thank you for the replies!

Exactly Ken. He didn't lie on a loan application, he is simply not making enough money, per his tax return, to make his payments. A conversation was held with the borrower and he claims this is the amount of money he's made from his business (he is self employed).

What gives me pause is that the instructions on the SAR report give several reasons for which to file and none of them actually fit this situation (which I guess may be why the 3rd most popular box checked in secotion II, "Other", is there). The only "reason" that is close is the BSA area that says we should file if the financial instution knows or has reason to suspect that: The transaction involves funds derived from illegal activities (if by "illegal activites" they mean under-reporting income, which they could - but the loan really doesn't have anything to do with the under-reporting of income, IMO - and if by "funds" they mean loan payments).

I may be looking at this completely the wrong way, but I'm having a hard time accusing somebody of Possible Tax Evasion when I don't "know" that this is occuring.

Daddy can be paying as well.

Not a lot to go on with out the conversation with the customer and then more than likely a SAR as you stated.

Is this a consumer or business loan?

Could the loan payment be deducted from his income?

I would only add - because I come across this - make sure the bank is reading the tax return correctly. A review of all schedules is needed to understand the cash flow.

Acme...

I'm not a fan of reporting on suspected income tax evasion; I can give anyone 15 - 20 minutes on why it makes no sense and would love a national forum to do so.

Like you, I find no specific reference in the regulations or the instructions to the form. However, the Handbook does make one oblique reference to it saying: "...banks are not obligated to investigate or confirm the underlying crime (e.g., terrorist financing, money laundering, tax evasion, identity theft, and various types of fraud).

Moreover, I've heard people from the top of the food chain at FinCEN insist that suspected income tax evasion is reportable... Mind Kaybee's point, but any alternative explanation I see is purely theoretical and if the borrower didn't suggest it, I certainly wouldn't assume it.

You may get some push back in your bank. So, I suggest you call the FinCEN Helpline and ask. Don't ask if you should file the SAR because they will not answer the question. Just ask if suspected income tax evasion is reportable. If there are people in your bank who do not want the SAR filed then that leaves it to them to explain why this is not income tax evasion.