In addition to news about Israel, Srugim and waffles, The Muqata Blog has also been following the US Tax code and its implications to expatriate US citizens living in Israel. We discussed the FBAR and the IRS child tax credit option.
6 months ago we disclosed that 13 FBI agents (or perhaps Homeland Security?) had set up a special unit within the US Embassy in Tel Aviv. Now we report that many of those who have claimed (and received) the $1000 per child tax credit rebate, have started to receive audit notices from the IRS. (See image above -- its the real McCoy, with only the identifying details blacked out)
The IRS requests a boatload of documentation that must be provided within 30 days.
I read through this request...and thought, "Well, that's not SO bad. I could get all that data together in 30 days".
And then I did the wrong thing, by googling "IRS Audit"
Q: What are my chances of getting through an audit without owing additional taxes?
A: Fewer than 25% of audit victims make a clean getaway. The IRS audits half as many taxpayers today as five years ago, but the take per audit has increased. The IRS, thanks to its sophisticated computer selection process, audits only those returns in which adjustments are almost a certainty. Realize the odds are against you and focus on limiting the damage from an audit.
Limiting the damage? I filed using a professional CPA and tax preparer. He doesn't try to bend or break the rules.
Some outfits (some already allegedly under IRS and FBI investigation) sound like used car salesmen:
In 2009, the Stimulus Act of the Obama Administration meant that instead of having a reported income of more than $8000 a year, American citizens in Israel only needed $3000 a year in reported income in order to qualify for a tax credit of $1000 per child. This means that the American government is helping its citizens by distributing money, and a check can come to your mailbox with $1000 per child, if you act now. This is not a gimmick.Mishpacha Magazine (page 1, page 2) has a whole write-up on the onslaught of IRS requests for audits, quoting CPAs that "We've entered a new era...we've been receiving requests from people who are being audited... something that's never happened before [in Israel]"
People are warned of the following illegal practices that the less reputable tax preparers use:
- Those who naturalize their children during a given tax year, cannot claim the tax credits retroactively for previous years.
- Use of Kollel stipends or parental gifts as income for claiming the tax credit
- Grandparents claiming their grandchildren as dependents since 2005
These are common practice among the less reputable tax preparers – some of whom don't even sign the tax return! When faced with an audit, the onus is on those who signed the form. Make sure you KNOW what you're signing when filing your 1040.
With a less than 25% chance of a clean getaway on an audit -- the IRS is not who you want to mess with; even in Israel.
If you want the name of a reputable CPA tax preparer, and not some fly-by-night scammer, drop me an email.
We're going to be following this story, as the audits start piling up...
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