According to “Accounting Today”, a recent study showed that more Californians are audited than the residents of any other state in the US. This was based on a large sample of 1.4 million audits completed in 2013. Why are Californians at a higher risk for IRS audits? Two simple reasons: higher wage earners and foreign investments and accounts.
California is an expensive place to live, and the lifestyle of many Californians requires an income in excess of $200,000 annually. The standard audit risk for all Americans is less than 1% in any given year. Those that earn $200,000 or more each year are five times more likely to be audited than those who earn less.
Eric Tyson, the author of several “Taxes for Dummies” books, notes that this is simply because there is more money at stake. “The IRS is a business, they have employees and they do not have time to let them audit people if they are only going to earn $2 worth of tax.”
California is one of the most beautiful places to live in the United States, and many US taxpayers and permanent residents own real estate in foreign countries, own an interest in a foreign company or corporation, or have more than $10,000 in their combined offshore bank and investment accounts. This profile has been under attack since the implementation of FATCA. Recent successes by the US Justice Department have brought foreign banking, investment and tax authorities to their knees.
As a result, the IRS has a free flow of information from many sovereignties and foreign banking and investment institutions. They know what you own and it’s perceived value, where your money is, how much is in each account, and they can tie it back neatly to your social security number or Federal tax ID. FBARs have become a primary tool for auditing US taxpayers. The risks are not only penalties and interest in excess of 50% of the highest cumulative balance of those assets and accounts in the past 8 years, but exposure to criminal charges as well.
If you have been contacted by the IRS for an audit, or received a letter of notification call us immediately for a free consultation at 866-631-3470. US taxpayers should never contact the IRS without the protections of the attorney-client privilege and representation based upon deep experience and expertise.