IRS Streamlined Filing Program (used to catch up for Failing to File Certain Foreign Asset Reporting forms) May Now Be Audited

The IRS may soon begin to audit those who have filed under the Streamlined Program which is used to

catch up the filing of certain foreign asset reporting forms which the taxpayer failed to file. These forms include form 5471, 8865, 114 (FBAR), 8938, etc.  Entering this program avoids certain penalties and may permit you to file or amend the past three years tax returns and six year Forms 114 (FBAR).

Read more about the forthcoming audits and how to prepare here.  If you wish further help email us at ddnelson@gmail.com.  All consultations are protected by attorney/client privilege.

Miscellaneous IRS Tax Rules and Facts for Expatriates Living Abroad

• You have an obligation to keep the IRS informed of your currrent address using their form 8822. If you do not, they can take any action they wish (audit, assessment, etc) and it is valid because you failed to keep them current on your address.
  
• Your tax return can be audited for 3 years after it is filed and six years if you omitt more than 25% of your income.
• The statute of limitations on assessing taxes NEVER runs out if you fail to the a US tax return. That means the IRS may make an assessment for any year you failed to file a return and were required to forever.
• The statute of limitations for failing to file a foreign bank account report (FBAR form 114) is six years.  The criminal and civil penalites are huge and the IRS is currently collecting those penalties and prosecuting non filers who clearly intentionally were hiding their funds and not reporting as income.
• Dual citizenship does nothing for you as a US taxpayer. All rules are the same as if you were just a US citizen.
• The IRS is currently receiving reports on US taxpayers funds held in foreign banks and stock brokers, etc. from over 78,000 foreign institutions around the world.
• If you owe the IRS more than $50,000 in taxes and penalites when you enter the USA they can request the US Customs and Border Protection seize your passport.
• The US has no regulations forbidding or making it illegal to own foreign real estate, stocks, or other property abroad including foreign bank accounts. The IRS does have special forms to report ownership on many of these items to the IRS with $10,000 or more penalties for failing to file these required forms.
• Owning foreign real estate (so long as it is not a rental or income producing) in your individual name does not have to be reported to the IRS.

RED FLAGS THAT WILL CAUSE AN IRS AUDIT OF EXPAT OR INTERNATIONAL US TAX RETURNS

Many things may cause your US tax return to be audited. As an expat, in addition to the items list in the article below some items that will cause an audit are:

a. Ownership of a foreign mutual fund and failure to file the special forms required for foreign passive investment companies.
b. Ownership of foreign partnerships and foreign corporations in which you own the majority interest.
c Large. Inheritances or gifts received from nonresident donors when you fail to file form 3520 to report those gifts or inheritances.
d. Unusually large income from outside the US with unusually large deductions offsetting most of that income so little tax is paid.  This might not cause an audit if your paid substantial foreign income taxes abroad and you are claiming a foreign tax credit to offsett your US tax on that income.
e. Other audit triggers from the Huffington Post.


Remember they can audit your return up to three years after it is filed and up to six years if you omitt 25% of your income.  If you want to avoid IRS audits or need representation when the IRS does audit your expat or international tax return email us at : ddnelson@gmail.com

IRS NEW AUDIT TARGEST FOR 2017 INCLUDE INTERNATIONAL AND EXPATRIATE TAX ISSUES

The 6 IRS International audit campaigns or areas the division plans to target for 2017 include:

• declines and withdrawals from the offshore voluntary disclosure program;
• related-party transactions;
• repatriation of income from overseas locations;
• foreign companies doing business in the United States that are not filing appropriately;
• transfer pricing associated with inbound distribution of goods from related parties outside the United States;
• losses claimed in excess of basis in S corporations.

If you need assistance with these items to make certain you are handling it correctly or wish to correct prior to audit, please ask us.  If you are audited we can represent you against the IRS.  Email us at ddnelson@gmail.com  or skype us at; dondnelson.

Red Flags That Trigger IRS Audits

Read below from MSN MONEY:

http://www.msn.com/en-us/money/taxes/top-15-red-flags-triggering-an-irs-tax-audit/ar-BBq2UAJ?li=BBnb7Kz#page=1

Time Sets Forth Taxpayer Characteristic of Those Most Likely To Be Audited

Those most likely to be audited by the IRS include the following individuals:

• People who show more than $10 million in income or NO income at all!
• People who file International Tax returns and show International Activies on Their Return

The IRS is using various laws and other techniques to locate the  Seven Million Americans who live outside the US.  It appears that over half of those individuals are still not filing annual tax returns as required by law.  If you do file, you do not get doubled tax since you get credit for taxes you pay to foreign countries which directly offset your US income tax on the same income.

There are special reporting forms for US bank accounts, foreign corporations, foreign trusts, foreign partnerships, foreign mutuals funds, etc. Failing to file these forms can result in penalties of $10,000 or more and often the statue of limitations never runs out on the IRS's ability to audit your return if you fail to file these required forms.

Let us help you catch up and enter the programs which currently exist and may be terminated any day by the IRS which reduce or eliminate many penalties for failing to file or filing late.  Email us at ddnelson@gmail.com.  We offer all clients the absolute  legal privacy  of Attorney/Client privilege if required.  Don D. Nelson, Attorney at Law, CPA.

Time Magazine Article on Taxpayers Most Likely to be Audited

Are You Inviting An Audit?

http://triblive.com/mobile/5740073-96/irs-business-audit

4 Common Myths About Taxes

From USA TODAY 4 common myths about taxes It's not that surprising that there's a lot of misinformation out there about taxes. The U.S. tax code is over 4 million words long and not one of us has the time to go through it all. Most of us treat the tax code like the monster it is, interfacing with it only from a distance and once a year paying homage to it in the form of a tax return. Since there's so much to know about taxes and so little willingness to learn about them, people sometimes make assumptions about how the system works that turn out to be false. These bits of false information sometimes take on a life of their own and, unfortunately, become common knowledge. This is problematic because a misunderstanding of how the tax system works can have consequences — most personal financial planning requires a basic, and reality-based, understanding of how taxes work. Otherwise, you could find yourself owing a lot more money than you expected — or, at least, worrying about irrelevant details when you should be relaxing. http://usat.ly/1lPpttt Get USA TODAY on your mobile device: http://www.usatoday.com/mobile-apps

WHAT IRS LOOKS AT TO DETERMINE IF IT WILL AUDIT YOUR TAX RETURN

Great flow chart graphic (see link below) showing the statistics and criteria for audit by the IRS.  Note that foreign bank accounts are one of the criteria.  The IRS has recently significantly increased teh audits of expatriates living abroad . Those audits are conducted by mail, phone, etc.  You will need written documentation to support anything they question on your return (without written documentation you will lose the deduction).

The IRS will often test your reported income by asking to see your bank statements, etc. to determine how much money is going through those statements and compare it with your reported income. Any difference must be explained.  Your lifestyle (home costs, living expenses, etc) must also be supported by your income or you may have to explain and prove where the additional funds to support it come from.

LINK TO AUDIT CRITERIA AND STATISTICS  http://www.entrepreneur.com/article/227437.

Email us if you need experienced attorney/CPA tax audit representation 

Where Are the Potential Tax Cheats - IRS List Communities Where The Cheats are Located

The National Taxpayer Advocate used confidential data from 2009 tax returns to identify clusters of potential tax cheats in more than 350 communities. The Internal Revenue Service assigns a score to each tax return rating the likelihood agents will collect additional tax money from an audit. The higher your score, the more likely you are to get audited.  If you live in one of the communities listed when you go to the attached link, it may significantly

increase your chances of aduit!

The study focused on sole proprietorships, which account for two-thirds of all U.S. businesses. The median scores for sole proprietors in these cities, towns and neighborhoods were among the highest scores in the country:

LIST OF TOWNS AND STATES WHERE IRS STUDY SHOWS THE TAX CHEATS ARE LOCATED ( LOOK AT IT TO SEE IF YOUR TOWN IS INCLUDED)

IRS Audits Drop, but Not on the Wealthy -Also more good news, Number of IRS Employees also drops

U.S. taxpayers were slightly less likely to face an IRS audit last year, according to an analysis issued Tuesday.

The IRS acknowledged that the number of audits of individuals dropped last year, but said examinations of taxpayers with incomes over $200,000 and over $1 million increased in fiscal 2012.

IRS audits dropped 5.3% in federal fiscal year 2012 to 1,481,966 audits of individual tax returns, based on IRS data analyzed by the Transactional Records Access Clearinghouse, a data research and distribution organization based at Syracuse University.

                                                              Read More about this in USA Today

10 Things that Cause Tax Audits of US Expatriates

1. Not Reporting All Of Your Taxable Income: The IRS cross checks your income sources with 1099s and W-2s. If your income has dropped, that may be a red flag. Do not under report your income, no matter how tempting. If you have some self-employed income, report it and then use every deduction or write off you can find.  They have tax treaties with many countries and may find out what you actually made abroad even though you thought they could not find out.

2. Filling Out Forms 2555 Incorrectly:  Leave boxes or lines blank, or fill out this form wrong you may cause an audit, an IRS letter of Inquiry, or perhaps a letter disallowing your foreign earned income exclusion.  Be careful if you use a program and do your return yourself. Best to have a professional review it before you file.  The IRS has found that many people are claiming this exemption are not eligible. Therefore, the number of audits has increased substantially.

3. Form 1116 (foreign tax credit) not done correctly: This is a difficult form to prepare and if done incorrectly, the IRS may disallow any foreign tax credit at all.

4. Taking Higher Than The Average Deductions: If the deductions on your return are disproportionately large compared to your income, the IRS audit formulas will go “tilt”. So if you have large medical deductions be sure you can prove them if need be.

5. IRS Finders Fee Program: The IRS does pay rewards to those who turn in US taxpayers for not reporting substantial amounts of income on their returns. If you have a co-worker, etc. who no longer likes you and knows your secrets, you may be in danger if those individuals learn about the big rewards that the IRS pays for turning you in.

6. Business Meals, Travel And Entertainment: Schedule C is filled with tax deductions for the self-employed individual. And the IRS has figured out that often some self-employed individuals tend to claim excessive deductions. They then make the assumption that all such individuals may cheat so Schedule C will get a review.

7. Claiming 100% Use Of Your Car For Business: If you are self-employed and use your car for business be honest with how much you actually use the car for business. Keep very good records of the miles you drive. I know it’s a nuisance, but necessary.

8 . Large Cash Transactions: The IRS requires reports  in the US to be filed for cash transactions in excess of $10,000 involving banks, casinos, car dealers and other businesses.  If they receive these reports from these places they may audit you.  The IRS also tracks wire transfers in and out of the Country.   Such transfers may result in an audit if your tax return fails to show the receipt of such money as income or the amount does not fit in with your financial resources.  If you receive a large gift from abroad, you my have to file form 3520 to report that gift (no tax is due if you file this form for gifts from nonresidents outside of the USA) or risk a huge penalty for not reporting the gift.

 9. Math Errors: If you do your tax return in long hand, check your math and be sure to sign the return and put in the correct social security numbers. A sloppy return can trigger an audit.

10. Failure to Properly Abandon your State Tax Domicile:  Many states like Virginia, New Mexico, California and other have state tax laws that make it difficult to move abroad and stop paying state taxes if one of these is your prior state of residency. This is aggravated if you keep using an address in that State or return to that state after spending 2 to 4 years abroad.  These states get your Tax information from the Federal return you file and because you are still using an address in that State on your return, send you an assessment or audit you for taxes they feel are due. Take precautions to properly surrender your tax domicile (which is often different than residency) to avoid this problem.

We are experts at help you avoid these problems. Visit our website at www.TaxMeLess.com or email us at ddnelson@gmail.com.