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February 19, 2012


Though in the past very few expatriate tax returns were ever audited by the IRS, the level of audits now and in the future are going to increase significantly. Listed below are some tips you can use when you expatriate tax return is prepared which will reduce the chance it will be audited.
  • If you have any unusual items of income or expense on your return attach a footnote explaining that item. An explanation may head off the audit.
  • If you file special foreign forms such as 5471, 8865, TDF 90-22.1, etc. make certain they are filled out correctly and in full. Failure to due so will cause the IRS to inquire further.
  • Do not attach items to your return which are not required by the IRS such as earnings statements from foreign employers, investment statements, supporting bills, etc. Attaching these items may raise questions.
  • Only fill in the portions of Form 2555 that are required for the Foreign Earned Income Exclusion type you claimed.
  • Try extending your return to 10/15. Though the IRS does not admit it, many tax experts feel that returns that are extended and not filed until the last minute are not audited as often as those filed by the normal due date.
  • Report all foreign bank accounts, financial accounts, foreign income, etc. The IRS will shortly be receiving reports from foreign banks and other financial decisions which they will match with your return and the TDF 90-22.1 (FBAR) forms that you file.
  • File tax returns for all tax years even if you earning are below the minimum required for filing. This not only causes the 3 year statute of limitations to run out but avoids IRS inquiries in later years about unfiled US tax returns.
  • The foreign tax credit Form 1116 is complex. If you are not certain it is completed correctly, best to get an expert to review it to make certain there are no issues.
  • When audited it is best to retain at expatriate tax professional to deal with the IRS Agent. The IRS agent is a Tax Collector and is not your friend. You may make statements to the agent that can hurt you or expand the scope of the audit. A professional will prevent this from happening.

We can prepare your expatriate tax return for your or review your self prepared return to assure you it is prepared correctly. We have been preparing US expatriate and international tax returns for over 30 years. It is all we do and is our specialty. Please call or email for further assistance.

Don D. Nelson, C.P.A., Attorney
Kauffman Nelson LLP - CPAs
Dana Point, California 92629 USA
US Phone: 949-481-4094 US Fax 949-218-6483
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