Quick summary

When the IRS requests proof of foreign income, it’s not necessarily an accusation — it’s a document request to verify the numbers on your return. Responding carefully and on time reduces the risk of penalties, audits, or enforced collection actions. Below are practical, step-by-step actions, sample documents the IRS expects, and options if you discover errors after you respond.

Step-by-step checklist for responding

  1. Read the notice carefully. Note the deadline and the exact items requested. Notices often list a return line or an item (for example, “foreign wages” or “Form 8938 assets”). If the deadline is unclear, treat it as urgent and contact the phone number on the notice immediately.

  2. Confirm the timeframe covered. The IRS may ask about a specific tax year or multiple years. Gather documents only for the requested years unless you later discover additional omissions that need correction.

  3. Gather primary documents. Typical acceptable evidence includes:

  • Foreign tax returns filed in the foreign country (official stamped copies if available).
  • Employer pay stubs or payroll records showing gross pay and taxes withheld.
  • Bank statements showing deposits and wire transfers tied to income payments.
  • Contracts, invoices, and receipts for self-employment or contractor income.
  • Lease agreements and statements for rental income received overseas.
  • Brokerage statements, dividend statements, and sale confirmations for investment income.
  • Proof of taxes paid overseas (receipts, tax assessments, or bank confirmation of payment).

  1. Translate and convert amounts to USD. Provide certified or professionally translated English versions of non‑English documents and include a clear conversion into U.S. dollars. Use a consistent exchange-rate source and state it in a cover letter (see “Currency conversion and translation” below).

  2. Prepare a concise cover letter. Explain what you are sending, how it supports the item in question, and highlight any unusual items (like one-time payments or currency restrictions). Include your contact information and taxpayer identification number. If you’re represented by someone, include a copy of Form 2848 (Power of Attorney).

  3. Submit the response per the notice instructions. Many IRS notices accept mail, and some exam teams accept secure online uploads; follow the method specified on your notice. Keep proof of delivery.

  4. Keep a complete copy of everything you send. Save digital copies and a dated folder with originals or certified copies.

Currency conversion and translations

  • Translations: The IRS requires documents in English. Use a certified translator or make a notarized translation. At minimum, include a translator’s statement that the translation is accurate and the translator’s contact information.
  • Exchange rates: For individual transactions, the IRS generally expects conversion using the rate on the date of the transaction; for recurring income you may use a reasonable annual average rate (Form 1116 instructions allow this approach for foreign tax credit calculations). State the exchange-rate source you used (U.S. Treasury, Federal Reserve, OANDA, etc.) and apply it consistently. If you’re unsure, explain your method in the cover letter and keep the original foreign‑currency documents.

Authoritative references: IRS Form 1116 instructions and IRS Publication 54 discuss currency conversion methods used in tax filings (see authoritative sources below).

If the IRS says the income wasn’t reported

  • Do not ignore the notice. In many cases taxpayers simply failed to attach or report supporting forms (for example, failing to file Form 8938 or FBAR/FinCEN Form 114).
  • Compare the IRS request to your original return. If you discover an omission or error, you have several options:
  • Amend the return with Form 1040-X to add omitted income and claim credits (Form 1116 for foreign tax credit, or Form 2555 for foreign earned income exclusion if eligible).
  • File or correct FBAR (FinCEN Form 114) electronically if the IRS’s discrepancy relates to foreign bank accounts (see our guide on “Reporting Foreign Bank Accounts and FBAR Basics” for more).
  • Use the IRS Streamlined Filing Compliance Procedures if the omission was non-willful and you meet the eligibility requirements (see IRS guidance on Streamlined procedures).

If you choose to amend, include a clear explanation and attach the documents you gathered to support the corrected figures. Consider professional help when amending foreign income items — calculations and treaty issues can be complex.

When to use voluntary disclosure or Streamlined Procedures

If you did not report foreign income or foreign accounts in prior years and you fear the IRS may view the omission as willful, consult a tax attorney or an enrolled agent familiar with international compliance. The IRS offers the Streamlined Filing Compliance Procedures for taxpayers with non‑willful errors; there’s also a Voluntary Disclosure Practice for potentially willful conduct but that route requires careful legal planning (IRS website on compliance and voluntary disclosure).

How the IRS matches foreign income (briefly)

The IRS receives third-party information from multiple sources: FATCA filings by foreign financial institutions, information-sharing agreements, and data from tax authorities. That is why the IRS may see income or account balances that differ from what you reported. Understanding FBAR/FinCEN Form 114 and Form 8938 reporting thresholds helps reduce mismatch risk. See our explainer “FBAR vs. Form 8938: What to File for Foreign Financial Accounts” for differences and thresholds.

Useful internal links:

What to expect after you respond

  • Acknowledge receipt: The IRS may send a short acknowledgment or nothing specific. Keep delivery receipts.
  • Follow-up questions: If the agent needs more detail, they will issue another request. Respond within the new deadline.
  • Audit or assessment: If the IRS remains unsatisfied, they may propose adjustments, assess taxes, interest, and possible penalties. You’ll have rights to appeal or request a conference.

Common mistakes to avoid

  • Sending untranslated documents or untranslated key pages.
  • Using inconsistent exchange-rate methods across documents.
  • Failing to include a clear cover letter that ties each document to the item in dispute.
  • Ignoring the notice or missing the deadline.
  • Assuming foreign taxes paid remove U.S. reporting obligations — you may still owe U.S. tax, though you might get a foreign tax credit.

Sample cover letter checklist (what to include)

  • Taxpayer name, Social Security or ITIN, tax year(s) in question.
  • IRS notice number and date.
  • Short summary of what you’re enclosing (e.g., “Enclosed: 2019 Swiss tax return (English translation), Q4 2019 pay stubs, bank statements showing wire transfers dated 7/15/2019 and 9/03/2019”).
  • Statement describing how you converted foreign currency and the source for exchange rates.
  • Translator statement if documents were translated.
  • Signature and date. If represented, include Form 2848.

When to hire help (and whom)

  • Hire a CPA with international tax experience, an enrolled agent, or a tax attorney if the IRS alleges willful omission, requests many years of information, or proposes large penalties. A practitioner with cross-border experience can advise on tax-treaty relief, foreign tax credits (Form 1116), or exclusions (Form 2555).

Professional disclaimer

This entry is educational and does not substitute for personalized tax or legal advice. Tax situations vary by facts and treaty positions, so consult a licensed tax professional or attorney for advice specific to your case.

Authoritative sources and further reading

If you want, I can draft a short, IRS-friendly cover letter template (filled with placeholders you can edit) and a prioritized document checklist tailored to the documents you have on hand. Send a list of the foreign income types (wages, rent, dividends, etc.) and the years in question and I’ll prepare those two items.