IRS Loses Revenue From Foreign Income Claims

By Editorial 03 September, 2010

According to a report released by the United States Treasury Inspector General for Tax Administration (TIGTA), the Internal Revenue Service (IRS) lost an estimated USD90m in revenue in the 2008 tax year because of erroneously claimed foreign earned income tax exclusions.

The foreign earned income tax exclusion allows a taxpayer to exclude up to USD91,500 of foreign earned income. A taxpayer qualifies for this exclusion if he or she has foreign income and a home in a foreign country. An eligible taxpayer designates this status by filing the appropriate form with the IRS.

TIGTA conducted a performance audit to assess the IRS's ability to ensure the accuracy of these exclusions. TIGTA reviewed over 231,000 tax returns from 2008 and found that 10% of taxpayers claiming the exclusion either failed to qualify for the exclusion or inaccurately computed the exclusion. The income erroneously excluded totaled USD675m, and the estimated tax avoided totaled USD90m.

"This is very troubling. Over five years, the estimated revenue loss to the IRS could total more than USD450m," said J. Russell George, the Treasury Inspector General for Tax Administration. "Improvements must be made to reduce erroneously claimed foreign earned income tax exclusions.”

TIGTA made seven recommendations to the IRS in its report, but the IRS agreed with only four of them. TIGTA is concerned that the lack of corrective action will allow continued revenue loss.

Tags: Individuals | Expatriates | Compliance | Tax | Investment | Tax Compliance | Law | United States | Tax Breaks | Individual Income Tax |


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