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The Tax Practice of IIT Chicago-Kent College of Law
The Tax Practice of IIT Chicago-Kent College of Law


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Posted on in Tax Rants

International investment is becoming easier and easier, so long as you have available funds. 

Advancements in technology, as well as the decreasing significance of language barriers and restrictive politics has made it possible for U.S. interests to invest overseas, even if the capital outlay is not massive. 

But the U.S. reporting rules are strict, and compliance essential.  Here’s what you need to know about reporting requirements prior to undertaking even a minimal foreign investment project. 

FBAR Reporting

In February of 2007, the Internal Revenue Service issued a news release outlining the reporting requirements for foreign financial accounts held by U.S. taxpayers under the Bank Secrecy Act of 1970 (BSA).    


tax audit, challenging an auditThere is actually such a thing as a "simple audit"; these are so-called "correspondence audits," where the IRS sends you a document inquiring about a single aspect of your return. You send the form back with an answer, they adjust your return as necessary, and you move on with life. About three quarters of all audits are of this variety, and professional tax audit representation is often not needed in such instances.

But correspondence audits are not what most people have in mind when they talk about "getting audited." To most taxpayers, an IRS audit means you've been called into their office to answer questions, and you'd better be prepared. If you did something wrong, you pay. If you made a mistake, you pay. If you don't have the proper records to back up your claims, you pay. Of course, because these "field audits" generally happen at least two years after your return is filed, producing the necessary documentation is not always easy…

By far, the biggest way to make a field audit into a nightmarish travail is to challenge the IRS on their assertion that you owe more money. There's a predictable set of steps you will go through if you disagree with the IRS audit findings:

  • First, you'll talk to the agent you believe made a mistake in your audit;
  • Next, you'll try to convince the agent and/or hismanager of the mistake;
  • If the manager disagrees, you can try the IRS Appeals process ;
  • Finally, if the appeals officer doesn’t settle with you, you can take your case to Tax Court.

Generally speaking, moving beyond the managerial level is going to get very difficult, very quickly. Contrary to popular belief, the IRS doesn't like to do audits - they typically lose money on the audits they perform. This means, however, that if you're going to make them spend even more time and money on your case, they may be inclined to do anything they can to make their effort worthwhile.

How? This is most commonly accomplished by expanding their examination of your return to different issues and different timeframes - even going so far as to include previous or subsequent returns into the case if they think they can make it profitable to do so. In other words, what you thought was going to be a look at the home office deduction you took in 2013 becomes a numerical colonoscopy of every business expense you've claimed since 2010. Suddenly there's so much more at stake than the one $1,000 error you're pretty sure the return preparer made.

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