Chronicles of Tax Advisors
Here is a case where we have saved tens of thousands of dollars for our client. Originally, the client came in due to an IRS Audit of their 2012 tax return which resulted in a tax liability of $62,000. The original return prepared by another tax preparer had understated sole proprietor income by $254,000. Usually, this would have created a substantial increase in tax liability on both federal and self-employment earnings. However, after an initial interview and thorough analysis of the original return, we were able to determine that a very important tax credit had not been taken.
The client had worked in a foreign country and the company he worked for had paid income taxes on his behalf to that foreign country. Because of this, a Foreign Tax Credit could be taken on his tax return. We amended the return with the increase in income and the Foreign Tax Credit, then sent it in to be reconsidered by the IRS. Despite the fact that his reportable income had increased by $254,000, the Foreign Tax Credit greatly reduced his tax liability. Instead of owing the IRS $62,000, he received a refund of $4,660.
The Foreign Tax Credit can be used to amend returns as far back as 10 years. It is one of only a few exceptions to the IRS’ three year rule to amend and receive refunds. Knowing this, we decided to check the client’s prior years for the Foreign Tax Credit. By applying the Foreign Tax Credit to amended prior year returns, we were able to help him bring home tax refunds of over $92,000.
Todd Ancona, EA
Licensed to practice before the Internal Revenue Service
An Enrolled Agent (EA) is a federal authorized tax practitioner who has technical expertise in the field of taxation and who is empowered by the U.S. Department of Treasury to represent taxpayers before all administrative levels of the Internal Revenue Service for audit, collections and appeals.