- 1 Strategically Avoid IRS Audits
- 2 Include all Necessary Tax Return Attachments
- 3 File Timely and Accurately Tax Return
- 4 Include all Domestic and Foreign (FATCA)
- 5 Annual FATCA and FBAR Compliance
- 6 Streamlined Offshore Procedures to Minimize Non-Willful Risk
- 7 Avoid Tax Evasion and Tax Fraud
- 8 Voluntary Disclosure Audits are Unavoidable but May be Preferred
- 9 Late Filing Penalties May be Reduced or Avoided
- 10 Current Year vs Prior Year Non-Compliance
- 11 Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)
- 12 Need Help Finding an Experienced Offshore Tax Attorney?
- 13 Golding & Golding: About Our International Tax Law Firm
Strategically Avoid IRS Audits
The Internal Revenue Service has indicated that it has every intention of pursuing audits and examinations in 2024 and in future years. For U.S. Taxpayers, this can cause unnecessary stress and strain on their mental health in trying to determine what they can do to try to avoid being subject to an IRS audit. While a taxpayer cannot definitively avoid a tax audit by the Internal Revenue Service, there are some approaches that they can take when filing their taxes — or getting into compliance for prior year non-reporting — that may assist them to strategically avoid being audited. Let’s look at seven (7) important approaches that taxpayers can make when seeking to avoid an IRS audit.
Include all Necessary Tax Return Attachments
When taxpayers file their tax returns, they are required to include certain attachments depending on whether they receive W-2s, 1099s, or other forms. Taxpayers who must include attachments with their tax returns must include these attachments to help minimize the risk of the tax return not going through smoothly. While not including an attachment will not necessarily increase the chance of an audit — submitting an accurate tax return that can be processed as simply as possible puts the taxpayer in the best position to avoid an audit.
File Timely and Accurately Tax Return
When filing tax returns each year, taxpayers should be sure to try to file their returns timely and accurately. For taxpayers who do not include accurate W-2s or 1099 information, it may result in follow-up by the IRS — and depending on the outcome may lead to an audit. Again, just filing a tax return that is not entirely accurate does not necessarily lead to an audit but avoiding any further inquiries by the IRS typically serves to reduce the chance of an examination.
Include all Domestic and Foreign (FATCA)
For taxpayers who have income in the United States and overseas, they must include both sources of income on their U.S. tax returns. This is further complicated by the fact that more than 110 countries have entered into FATCA (Foreign Account Tax Compliance Act) Agreements, wherein these foreign countries volunteer information about individual taxpayer foreign accounts and income generated that they have in their records. If information is not included on the tax return, it too can lead to an audit.
Annual FATCA and FBAR Compliance
As a further result of FATCA, the United States government received ongoing information about taxpayers and their foreign accounts, assets, investments, and income that they may not realize the IRS already has. Therefore, taxpayers should be sure to file all necessary international information reporting forms with the two most important acronyms being FBAR and FATCA. If the taxpayer has ownership of a foreign trust or foreign entity, additional forms may be required as well.
Streamlined Offshore Procedures to Minimize Non-Willful Risk
For taxpayers who are out of compliance for prior year reporting of foreign accounts, assets, investments, and income they may consider entering into the Streamlined Procedures to effectively minimize their risk of audit. That is because entering into the Streamlined Procedures shows the IRS that the taxpayer is now in compliance, and since the taxpayer is now in compliance, it reduces the chance of the IRS wasting its resources on pursuing an audit. While some taxpayers who enter the Streamlined Procedures may be audited, the chance is low, and even then, the audits are typically contained to issues involving the streamlined procedures.
Avoid Tax Evasion and Tax Fraud
Taxpayers should also be careful to not intentionally or recklessly avoid reporting income from the United States or abroad on their U.S. tax return. That is because the IRS has many ways that they can learn about this misinformation, including 1099s and W-2s that do not match up to what is reported in the tax return, whistleblowers, underreporting analyses, as well as cross-referencing other filers who may be reporting the same information on their tax return.
As a final note, taxpayers who are willful and cannot certify under penalty of perjury that they are non-willful may want to consider entering into the IRS Voluntary Disclosure Program. With the IRS voluntary disclosure program, the IRS does audit the taxpayer, but because the taxpayer knows that the audit is coming, they can best prepare as opposed to being surprised. Likewise, they can usually contain any issues and at the end of the process typically receive a 906-closing letter.
Late Filing Penalties May be Reduced or Avoided
For Taxpayers who did not timely file their FBAR and other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.
Current Year vs Prior Year Non-Compliance
Once a taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.
Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)
In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties.
Need Help Finding an Experienced Offshore Tax Attorney?
When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting.
Golding & Golding: About Our International Tax Law Firm
Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure.
Contact our firm today for assistance.