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

Expatriates Must Substantiate Travel Expenses in Writing to Get a tax Deduction

Many expats deduct travel and entertainment expenses for their businesses on their tax returns. You can only succeed in the event of an IRS audit (which are now becoming common with  respect to US expatriates), if you can prove the amount deducted and the relationship to your business with written records. The rules are simple:

Under Code Sec. 274, heightened substantiation requirements apply to: (1) any traveling expense, including meals and lodging away from home; (2) any item with respect to an activity in the nature of entertainment, amusement, or recreation; (3) any expense for gifts; or (4) the use of “listed property,” such as a passenger automobiles.

When you wish to deduct travel and entertainment expenses, you r must substantiate those deductions by adequate  written records or by sufficient evidence corroborating the taxpayer's own statement: (1) the amount of the expense; (2) the time and place of the travel, use of the property, etc.; (3) the business purpose of the expense, and (4) the business relationship to the taxpayer of the deduction . To do this, a taxpayer must maintain records and documentary evidence that in combination are sufficient to establish each element of an expenditure or use. (Reg. § 1.274-5T(c)(1) and Reg. § 1.274-5T(c)(2) 

We can help if you are audited or planning so you can deduct all of your business expenses. Let us do your expatriate tax return preparation. We have been doing expat returns for over 31 years.  WWW.TaxMeLess.com   or email ddnelson@gmail.com.

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

HOW TO AVOID AN IRS EXPATRIATE TAX AUDIT

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

Email: ddnelson@gmail.com ustax@hotmail.com

Websites: www.TaxMeLess.com www.expatattorneycpa.com

Latest International Tax Developments Blog: www.usexpatriate.blogspot.com

Expats Guide to Surviving and IRS Audit

The Chairman of Thomson Reuters China has written a guide to help expats survive IRS audits. In the past several years the IRS has hired thousands of new personnel in its International Division and the number of expatriate tax audits are increasing dramatically and will continue to increase in the future. READ THE ARTICLE HERE.

The IRS has discovered that tens of thousands of expats are taking the incorrect foreign earned income exclusion and foreign tax credits which has directly resulted in the increase in Tax Audits. Taxpayers who do their own returns on consumer tax return software often make errors on their returns due to lack of guidance. Remember all such errors may result in additional taxes due, interest and penalties which can often be very high.

  Our firm has represented hundreds of taxpayers in IRS audits with great success. Please email us if you need help. Thanks.   ddnelson@gmail.com