One of the most unwanted visits is a visit by a representative of the Israel Tax Authority. The thought of the assessing officer knocking on the doors in a demand to carry out an interrogation is certainly enough to send chills down one’s spine. This is fact is true for any of the tax authorities, and especially true when it comes to the U.S. Tax Authority, the IRS, which sets the most stringent sanctions for the lack of reporting, inaccurate reporting, or failure to pay taxes.
In the article before you, we will provide you with the most relevant information to assist you when dealing with U.S. tax audits. We will answer questions such as who may be a target of an audit? How can you tell if you are subject to an audit; What are the various types of reviews; and what are the relevant sanctions if one fails to pass the audit.
Who could be the target of a U.S. tax audit?
Any taxpayer who is required to file an income tax return with the U.S. tax authorities may be subject to an income tax audit. This is the case for individuals who are American citizens, for American companies, and even for foreign individuals and foreign companies that have a source of income within the United States. Any one of them, and perhaps even you, might be subject to such an audit.
How can you tell if you are subject to a tax audit?
Let us start with a reassuring fact – the tax audit mostly does not involve an official on behalf of the IRS that comes knocking on your door. The U.S. income tax audit will usually begin with a letter with a requirement for documents and references. From now on, you are subject to strict audit by the tax authorities who will examine the veracity of the reports for the current tax year, and even for previous years.
How is the tax audit carried out?
In general, we divide the reviews based on their characteristics into several possible types of reviews such as:
A demand for documents and their rigorous examination
For the most part, the tax audit will include first of all a requirement for documents and hopefully will not require any additional steps. These are documents that support the data declared in the tax reports you filled out. Therefore, it is important to fill out the IRS reports, their accompanying forms, accurately and rigorously. A non-rigorous filling, even if unintentionally, can arouse suspicion and lead to a full audit to be conducted. Similarly, it is important to meet the requirements of disclosure of the documents professionally, since professionally filled documents might assist in bringing the process to an end.
Questing
Another option is that you will be called to the offices of the Tax Authority for questioning. Investigations based on questioning are broader than investigation based on supplying documents, it does not deal with specific details in your income tax return but with the return as a whole. For the questioning you will be required to bring with you all of your account books, and you are expected to be able to be asked about every detail about them. Such questioning, can also be done in the presence of an accountant on your behalf. In fact, it is appropriate and recommended that you bring with you an experienced and professional accountant to support you. This may help end the procedure quickly and easily.
Surprise reviews
A third option is that a tax official will indeed come to your place of residence – your home or the place where you run your business and ask for information regarding your tax return. This type of investigation tends to be very broad and rigorous. Of course, in this context, it is of utmost importance to consult an accountant throughout the process.
What might be the consequences of the audit?
The importance of correctly handling U.S. tax audits cannot be underestimated – the lack of reporting or inaccurate reporting exposes the taxpayer to heavy economic consequences, and sometimes even to criminal proceedings.
Lack of reporting
Late reporting or lack of reporting may result in a fine of up to 25%.
Inaccurate, negligent, or unreliable reporting
Inaccuracy in reporting also results in a fine of about 20% of the tax liability. Of course, as far as fraudulent intentions are confirmed, in addition to the civil proceedings, criminal sanctions may be taken.
Non-payment of tax liability
Failure to pay income tax on time carries a fine of about 0.5% of the original tax liability.
All of the above rates accrue an interest rate that is calculated daily based on the annual interest of about 6%.
As you can see, all of these rates can add up together and reach enormous amounts – the cumulative amount of fines can reach up to about 75% of the amount of the original tax.
It should also be noted that those with significant tax debts may be exposed to the denial of their American passport.
However, even in the event that a tax has already been imposed, it is important to receive professional advice through which it is sometimes possible to reduce the fine and even cancel it completely.
Have you failed to file your tax reports as required? Did you file your tax return and later received a letter of inquiry from the IRS demanding documents? Have you scheduled a tax interview at the authority’s offices? Did the IRS conduct an investigation against you and imposed fines on you? Mas America’s professional team has extensive experience and will be happy to be at your disposal and make this unpleasant scenario disappear.
