STEVEN TOSCHER and MICHEL STEIN to Speak at Upcoming Strafford Webinar
We are pleased to announce that Steven Toscher and Michel Stein, will be speaking at the upcoming Strafford webinar “IRS Audits of Expatriates: Section 965 Transition Tax, Exit Tax, Non-Filers, and the Examination Process” Tuesday, October 31, 2023, 10:00 a.m. – 11:50 a.m. (PST).
The IRS has and continues to audit a higher proportion of expat tax returns. The IRS 2019 Databook revealed that approximately 10 percent of expatriates’ tax returns are selected for audit. Considering the complexity of the returns, this should not be surprising.
The rules for these nonresidents are often the reverse of those for residents. The filing status Married Filing Jointly can require a special election, self-employed taxpayers often are not entitled to deduct expenses, and simple presence in the U.S. for 183 days can trigger capital gains. Remarkably, two-thirds of expats paper file these complicated returns.
In April 2023, the IRS Large Business & International Division released its list of currently active compliance campaigns. A dozen of these issues include campaigns targeting international taxpayers. These audits include expats who filed Form 8854, Initial and Annual Expatriation Statement, as well as those who did not.
Included on the list is its compliance campaign focusing on Section 965 transition tax payments. The Service required these payments by U.S. shareholders of certain foreign corporations on unrepatriated (untaxed) earnings as part of the 2017 Tax Act. The IRS stated that these audits could be expanded to other issues, particularly those relative to the 2017 Tax Act.
However, a major case pending before the U.S. Supreme Court (Moore v. United States, Case No. 22-800) is calling into question this provision on the issue of whether the 16th Amendment authorizes Congress to tax unrealized sums without apportionment among the states. Depending on how the court rules, large portions of the U.S. tax code could become legally uncertain.
Tax professionals and advisers working with individuals who have relocated abroad must understand the issues triggering these IRS audits, prepare clients for these audits, and know how to handle these demanding examinations.