Unreported Income | The Tax Channel

IRS Audit Items

On December 8, 2010, In IRS Tax Audit, By admin

Chances of being audited by the IRS are greater under the following circumstances:

1) You have large amounts of itemized deductions on your tax
return that exceed IRS targets.

2) You claim tax shelter investment losses on your tax return.

3) You have complex investment or business expenses on your
tax return.

4) You own or work in a business which receives cash and/or tips
in the ordinary course of business.

5) Your business expenses are large in relation to your income on
your tax return.

6) You have rental expenses on your tax return.

7) A prior IRS audit resulted in a tax deficiency.

8) You have complex tax transactions without explanations on
your tax return.

9) You are a shareholder or partner in an audited partnership or
corporation.

10) You claim large cash contributions to charities in relation to
your income on your tax return.

11) An informant has given information to the IRS re: unreported
income.

FATCA – IRS Audits and Statute of Limitations

On November 12, 2010, In FATCA, IRS Tax Audit, By admin

Foreign Account Tax Compliance Act (FATCA): IRS Audits and Statute of Limitations

I. Pre-FATCA

1. Three year statute of limitations for the IRS to propose assessments after a tax return was filed.
2. Six year statute of limitations if 25% or greater omission from gross income.
3. Civil fraud unlimited statute of limitations.
4. Undisclosed foreign transactions (e.g., failure to file Forms 5471, 8865, disclose 10% or more interest in a controlled foreign corporation or foreign partnership) suspend 3 year statute of limitations until the foreign information is provided to the IRS.

II. FATCA (Effective 3/18/10)
As of 2010, six year statute of limitations on omission of more than $5,000 of unreported income from undisclosed foreign bank account.

Suspension of three year statute of limitations across the entire tax return, all items, not just undisclosed foreign accounts for failure to file:

a. Reports of foreign financial assets (i.e., assets over $50,000) new form 2010 attached to amended part of Form 1040 tax return.
b. Annual reports required to be filed by a passive foreign investment company.
c. Election of Passive Foreign Investment Company (PFIC) shareholder to have the PFIC treated as a Qualified Electing Fund.

In 2010, under FATCA, the IRS may aggressively pursue audits by a statute of limitations which remains open for six years or is suspended indefinitely for undisclosed foreign transaction.

Tagged with: FATCA • IRS Tax Audit • PFIC • Statute of Limitations • tax audit • unreported income

New IRS Tax Audit Targets 2010

On November 8, 2010, In IRS Tax Audit, By admin

New IRS Audit Targets (2010)
The IRS does not conduct random audits but does conduct “research audits” that will test compliance in business tax categories. In 2010, IRS research audits target payroll taxes.

In 2009, the IRS increased tax audits of tax-exempt organizations by 28%. In 2008 there were 7,800 tax audits. In 2009 there were over 10,000 tax audits.

Total Revenue collected from IRS Tax Audits/Collection:
2009 – $48.9 Billion
2008 -$56.4 Billion
2007 – $59.2 Billion

In 2007, 2008 more revenue was collected from settlement of major tax shelter cases (e.g., drug maker Merck and Company paid $2.3 billion [tax, penalty, and interest] to settle a tax dispute for Tax Years 1993 – 2001).

Tagged with: foreign account • IRS Tax Audit • UBS • unreported income