Preparation for an IRS audit starts at tax filing time

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Author(s): Advo​cateDai​ly​.com staff The fol­low­ing arti­cle first appeared in Advo​cateDai​ly​.com, May, 2019.

U.S. tax­pay­ers liv­ing in Cana­da may be audit­ed by the IRS at any time and for a num­ber of rea­sons — but the best time to start prepar­ing for the audit process is not when the noti­fi­ca­tion arrives, but when the orig­i­nal tax return is filed, Oakville-based U.S. tax attor­ney (NY, DC) Alex­ey Man­a­suev tells Advo​cateDai​ly​.com. As Man­a­suev, prin­ci­pal of U.S. Tax IQ, explains, while there are some sim­ple cas­es and sce­nar­ios, U.S. tax is a com­plex area — and U.S. inter­na­tion­al tax is even more com­pli­cat­ed, espe­cial­ly in view of tax reforms intro­duced in late 2017. “It’s over­whelm­ing for both indi­vid­u­als and busi­ness­es, but it’s even more so for U.S. cit­i­zens and green card hold­ers who reside in Cana­da and out­side the Unit­ed States. For them, com­pli­ance and deal­ing with U.S. inter­na­tion­al tax issues are quite com­plex and cost­ly.” At the same time, he says, many tax­pay­ers think about tax return prepa­ra­tion as a stand-alone ‘com­mod­i­ty,’ which would­n’t gen­er­al­ly con­sid­er any poten­tial audits.

You don’t want to take incon­sis­tent posi­tions on both sides of the bor­der because ulti­mate­ly that can come to light, con­sid­er­ing the exchange of infor­ma­tion between the IRS and CRA and oth­er tax author­i­ties.
  Audits, says Man­a­suev, can hap­pen as soon as a cou­ple of months after the IRS process­es a tax return, or up to three years lat­er, which is with­in the gen­er­al statute of lim­i­ta­tions. Excep­tions to this include cas­es where there has been fraud, or where a return was not filed when required. The audit process can take any­where from four to six weeks to a few years. “Many tax return pre­par­ers just fill out the returns and file them, as if they were clos­ing their eyes and throw­ing a dart with­out know­ing where it’s going to land, and 99 per cent of the time, it actu­al­ly ends up in the right place.” The tax­pay­ers in these cas­es often aren’t pay­ing for analy­sis, research, or for the pre­par­er to doc­u­ment the tax posi­tion tak­en — which Man­a­suev says is key when it comes to defend­ing an audit if one aris­es…

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