By manipulating certain tax laws, certain individuals and institutions can actually perpetrate money laundering schemes by inaccurately stating something like the place where they have citizenship over the place where they physically reside.
To understand the difference and why this is important, it is crucial to understand what a Jurisdiction of Residence is, and what it means when it comes to tax evasion.
What is “Jurisdiction of Residence?”
An individual’s jurisdiction of residence is the country where they physically reside the majority of the time, for example, in their primary residence, or where they spend the bulk of their year. Unlike the Jurisdiction of Citizenship, this rule applies only to where a person spends most of their time.
This is sometimes also referred to as “Jurisdiction of Legal Residence” and is applicable to many tax laws and federal regulations. With some of these regulations, where a person maintains their primary or permanent residence affects certain tax laws and is significant to some fraud prevention laws as well. Jurisdiction of Residence can also refer to corporations like financial institutions and is not solely applicable to people.
Using a Jurisdiction of Residence for Tax Purposes
The Jurisdiction of Residence is applicable for tax purposes, as the IRS requires people and institutions to report their taxes based on where they reside. When dual residency is applicable—for example, with some financial institutions that have incorporated in one area, but primarily manage their business out of another—the institution must identify one area where they are a tax resident.
Some fraudsters may inaccurately report their true Jurisdiction of Residence to take advantage of certain tax laws, or even enable their money laundering schemes. Tax evasion is a form of fraud, and in some cases, of money laundering, so it is critical to ensure that proper Customer Due Diligence—and, when necessary, Enhanced Due Diligence (EDD)—best practices are used in accordance with federal regulations to actively prevent money laundering from occurring within any regulated platform or product.
Prevent Tax Fraud with Unit21
Tax evasion is one of the primary money laundering typologies all financial institutions should be aware of, and utilizing tools like Unit21’s all-in-one fraud solution to prevent and manage is the best way to stay compliant and mitigate the impact of fraud.
Schedule a demo today to learn more about how Unit21 can help.