For 2013, the IRS tax audit division promises to build upon previous trends. That is, more audits of the wealthy, with a particular focus on international tax issues. This article will give IRS tax audit advice and will explain just who is at an enhanced risk for an IRS audit, and what can be done to limit exposure to significant penalties.
IRS tax audit advice: The Good News: The Overall Tax Audit rate to remain the same.
In 2011, the over IRS tax audit rate was 1.1%. So the chances of being audited are rather slim. And when we look further at who is getting audited, the audit rate for typical waged W-2 taxpayers is rather small.
IRS tax audit advice: The Bad news: Where attention will be paid
The Tax Audit Rate for pass-through entities to increase. The IRS will be focusing on S-corporations, and partnerships. The tax audit rate for midsize firms (those $10 million – $250 million) is expected to increase. The tax audit rates for higher income earners is to remain high. One out of every eight returns incomes in excess of $1 million are audited. For those between $200,000 and $1,000,000. The audit rate is one out of 25.
IRS tax audit advice: The Worse news: Dangerous penalties for those with unreported foreign accounts
I previously mentioned the Offshore Bank Account Compliance Super Centers that are supposed to come online in 2013. The IRS has hired 600 auditors already to specialize in international transactions and will hire another 300. And with my dealing with IRS auditors, there is great excitement on behalf of IRS agents to be part of the international compliance unit.
The dollar figures are larger, and the cases are more complicated. The IRS has made it abundantly clear that it will treat those with unreported foreign accounts much more harshly than those who have come clean under the 2012 Offshore Voluntary Disclosure initiative. Those who feel the 27.5% penalty on unreported accounts is too high will be faced with uncomfortable news when they find out the IRS will assess an FBAR penalty of $100,000 per year for 6 years.
2013 IRS tax audit Advice: Rich and/or offshore, beware
If you are high income, if you have offshore accounts, accept the fact that you will be audited. If not this year, within the next few years at least. Some taxpayers are hiring tax attorneys to get prepared for an eventual audit. This is a great strategy for those who understand their returns may not be perfect and that they are a significant audit risk. They understand that is essential that records be as bullet-proof as possible so that an audit may be closed as soon as possible with the least amount of intrusion into a taxpayer's life.
If there has been unreported offshore income, it is essential that it is taken care of prior to the commencement of an audit that involves offshore bank accounts.
