Despite decreasing resources, the IRS is determined to pursue collections on foreign accounts.
This tax season the IRS received a lot of attention for its lack of funding. IRS agents and officials are under severe strain, which has led to an overall decrease in the number of audits the IRS performs.
Over the last three years the average taxpayer has experienced a 23 percent reduction in the chances of receiving an audit. Even higher-income individuals and businesses are slightly less likely to be audited. Overall, less than 1 percent of taxpayers received an audit in 2014, while those making $200,000 to $1 million per year had a 2.2 percent chance of being audited, or about three times greater than other taxpayers. The numbers for 2015 so far suggest even fewer taxpayers will receive an audit in 2015.
But there are notable exceptions. The chance of an audit increased according to the amount of income reported for the year. High-income earners making over $10 million in 2014 had a 16.2 percent chance of being audited, according to numbers provided by the IRS. Another exception is for taxpayers living overseas or who have significant assets abroad. With new laws combating offshore tax evasion, the IRS is going after offshore tax evasion like never before. In 2014, the IRS audited nearly 5 percent of international returns. The Department of Justice has been pursuing criminal allegations against dozens of banks in Switzerland and across Europe.
Combined with the implementation of FATCA and FBAR compliance, Americans with offshore accounts must be careful to fully comply with U.S. tax law or risk an audit. For the most part, Americans have caught on. Since the first voluntary disclosure program was made available in 2009, taxpayers have made 52,000 voluntary disclosures of offshore assets.
IRS focusing on certain returns
There is, of course, no predicting what returns the IRS will audit. But much like bank robbers, the IRS tends to go to where the money is. This is doubly true when the IRS is dealing with limited resources and must maximize the money it gets in return for investigations. In fact, offshore account tax compliance is one of the few areas to which the IRS is dedicated to increasing its resources.
American taxpayers who have received an audit notice must be careful in their response to the IRS. Even if a taxpayer is fully compliant with U.S. tax law, understanding the IRS' focus and investigative strategies requires an experienced tax advocate.
At Brown, P.C., our team has been helping taxpayers resolve issues with the IRS for decades, including audits of offshore accounts. Taxpayers who receive an audit notice from the IRS should contact Brown, P.C. before responding to IRS inquiries to discuss legal options.
Keywords: IRS audits, offshore tax evasion, FATCA, FBAR, IRS, voluntary disclosure, high-income earners.