IRS Should Further Scrutinize Expatriate Tax Returns

By Editorial 18 December, 2013

Improved oversight by the Internal Revenue Service (IRS) is needed for the tax returns of United States taxpayers living and working abroad and claiming the Foreign Earned Income Exclusion (FEIE), according to a new report released by the Treasury Inspector General for Tax Administration (TIGTA).

To alleviate the double taxation of taxpayers earning foreign income while residing overseas, the US tax code provides for the FEIE and the Foreign Housing Exclusion/Deduction. In the 2014 Fiscal Year, the FEIE will allow taxpayers to exclude foreign earned income up to USD99,200 on their individual income tax returns.

Based on a statistical sample, TIGTA estimated that US taxpayers living and working in foreign countries who claimed the FEIE reduced their federal income taxes by USD562m in the FY2009, while taxpayers claiming the Foreign Housing Exclusion/Deduction reduced their federal income taxes by an additional USD174m in the same year.

However, TIGTA found that, during the fiscal years from 2009 to 2011, IRS examiners were not referring tax returns to international specialist examiners for review. Approximately 99 percent of the individual tax returns selected for audit by domestic examiners with FEIE attachments were not referred, while, if they had been referred, TIGTA estimated that the IRS could have assessed additional tax.

TIGTA therefore recommended (and the agency agreed) that the IRS should ensure that domestic examiners and their managers are aware of the international referral criteria, while the international referral criteria process should also be evaluated to determine if it should be expanded to include the examinations that are not currently specified in the guidance.

Tags: Individuals | Expatriates | Compliance | Tax | Tax Compliance | Internal Revenue Service (IRS) | Tax Authority | United States | Tax Breaks | Individual Income Tax | Tax |


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