The Internal Revenue Service (IRS) cannot closely review every tax filing. As a result, there are a number of ways the agency determines which filings will warrant a closer review. To help filter out allegedly questionable returns, the agency often uses Compliance Programs.
What are Compliance Programs? Compliance Programs refer to specific areas of tax law that the IRS will choose to focus on for a given year.
What are the most current Compliance Programs? A recent piece by Wealth Management delves into a number of the agency’s most recent programs, but three specific examples that individual taxpayers should take note of include:
- Swiss accounts. Taxpayers that failed to disclose the presence of accounts in Switzerland are likely on the agency’s radar. The Swiss Bank Program resulted in the release of this information from Swiss financial institutions to the IRS. The odds of an audit will likely increase if the taxpayer’s records do not match those released by these financial institutions to the agency.
- Foreign Tax Credit. This credit is available for those who have paid income taxes in another country. The computation of this credit is difficult, errors are common.
- Foreign Earned Income Exclusions. This exclusion is available for those who live abroad. These United States citizens must either spend 330 days over 12 consecutive months within this foreign country or meet a test in order to receive the exclusion, referred to as the bona fide resident test.
These are only three areas of one program used by the IRS to take a closer look at tax filings. Additional factors can trigger an audit.
What should a taxpayer do if he or she is audited by the IRS? It is not wise to take a notification of an audit by the IRS lightly. An IRS audit is a serious matter. This review could result in steep penalties and, depending on the findings, criminal charges.
As a result, it is wise for those who are undergoing an audit to seek legal counsel. An experienced representative can review your filings and the details of your situation to provide counsel on the best way to come into compliance while mitigating the risk of fees, penalties and additional charges.