If you are a U.S. taxpayer and have any source of foreign income (whether you are currently living there or not), the IRS requires that you file a foreign-earned income tax form every year. If you don't file this form or have a suspicious-looking case according to the IRS, you may be subject to an IRS foreign tax audit, says San Diego tax attorney William D. Hartsock, Esq.
"The Controlled Foreign Corporation, Passive Foreign Investment Company and Foreign Personal Holding Company rules are complex and written by congress to assist the IRS. By not knowing the technical international tax rules, any document you provide or statement you make to the IRS may be an admission that you have violated these rules and owe taxes," said Mr. Hartsock. "IRS auditors are experts at interpreting the offshore tax rules and regulations against the taxpayer to increase your tax liability, so a thorough understanding of loopholes and the intricacies of these tax laws is absolutely essential when handling foreign income."
If a U.S. taxpayer receives a foreign tax audit or offshore tax audit, a full understanding of the problem areas are necessary to prevail against the IRS. Without ample planning and preparation, an IRS foreign tax audit could easily turn into a criminal tax investigation.
"The IRS is very serious about auditing and prosecuting holders of offshore credit cards, offshore bank accounts, foreign trusts, and international business companies for tax evasion and failure to report transfers," said Mr. Hartsock. "Fortunately, there are an unlimited number of legitimate defense that are very effective to combat the government's egregious penalties and crimes, including the 2011 IRS Voluntary Disclosure Program."
The Voluntary Disclosure Program is a longstanding practice of IRS Criminal Investigation of accepting timely, accurate, and complete voluntary disclosures from taxpayers who have failed to report or underreported their tax liability. It is currently the practice of the IRS that a voluntary disclosure will be considered along with all other factors in the investigation in determining whether criminal prosecution will be recommended.
Before you do anything involving an IRS tax audit (foreign or non-foreign), it's important to contact an experienced tax attorney. The cost of hiring a competent experienced criminal tax attorney pales in comparison to a criminal conviction on your record and repayment of the tax, 75% civil fraud penalty, interest and court fines.
For more information on claiming or handling your foreign income, or to schedule a consultation, call 858-481-4844