An expat’s guide to 5 ways to survive a tax audit
Think a U.S. IRS tax audit is stressful at home? Try doing it from halfway round the world.
This point was driven home to me at 5 a.m. one recent morning — before my first espresso — as I discussed abstruse sections of the tax code with my auditor.
Now, to be clear, the early hour was not a new form of torture — “pay up or we’ll never let you sleep again” — it was, in fact, my idea as the best time to let global time zones get my Tacoma, Washington-based auditor, Philadelphia, Pennsylvania-based accountant and Hong Kong-based me together.
I’m only at the early stages of the process (and I’m sure there will be a happy ending with a life-altering refund at the conclusion), but here are some of the things that I’ve learned about dealing with the Internal Revenue Service from the other side of the globe:
1. Even filing the change of address form (Form 8822) doesn’t always work. I filed mine as soon as I moved from London to Hong Kong six months ago, but that didn’t stop my audit from getting off on the wrong foot, as the notice went to my old address and arrived in front of me long after the “You Must Reply By” date.
2. Don’t be surprised by an audit — many of the things that are simply a fact of life for expatriates (like filing for foreign tax credits) raise eyebrows and flags just because they are so out of the ordinary for the overwhelming majority of domestic taxpayers.
3. Be prepared for frustration and irritation. Though I am a bit of a pack rat by nature, I must admit that the files of backup documentation for my 2008 return didn’t make the move. I was smart enough not to shred them, but they are in a box somewhere else in the world and not by my side.
When you lead a working life that has meandered over the years from Hong Kong to Taiwan to Beijing to Hong Kong to New York to London and back to Hong Kong, you get pretty good at prioritizing the things you want with you and the things you don’t: Wife — yes. Espresso machine — yes. Jazz collection — yes. Old pay stubs and brokerage receipts — no.
4. The IRS is actually surprisingly helpful to overseas taxpayers. There is a special number for people outside the United States ( +1-267-941-1000 ) which is answered quickly by agents who can access your file and provide sensible, intelligent answers. Once I’d finally connected with my examiner, he, too, was willing to be flexible about time zones and was very helpful with information (although he has yet to make the process simply go away!)
5. Having an accountant is worth it. Until my employer required I use an accountant, I was always a do-it-myself taxpayer. I actually enjoyed plugging the numbers into software and seeing the result, and I took a perverse pride in being self-sufficient. But you know what? There’s a certain point when the complexity is just too overwhelming. And being able to sign a power-of-attorney to let my accountant deal with the questions is a real pleasure.
I’m optimistic that this process will all work out in the end – and all while I’m sleeping. Now I just have to hope the refund check I’m expecting gets sent to the right address.