For the 17 years that we have lived in Israel, we have been boy scouts when it comes to paying our U.S. taxes. We file our 1040s dutifully, even though there is rarely any tax to pay (we pay our 45% pound of flesh to the Israeli authorities and then the double taxation treaty with the U.S. keeps us in the clear).
That doesn’t mean it’s easy: this last year we became aware that we’d never filed two forms – one for foreign owned businesses (I have one) and the other a declaration of most of our personal assets. Neither have any tax implications – they’re for information only – but failure to file carries a $10,000/year penalty. It cost a small fortune to get into compliance – and even that wasn’t a sure thing.
So when I received a thick envelope from the IRS (the U.S. Internal Revenue Service) yesterday, my heart started to pound. If it was just a statement of acceptance – or even a refund! – that would have been a one-pager.
We were being audited.
The letter tried to reassure us that it was probably just a random selection and in all likelihood we’d be fine. There was no mention of the two forms I’d filed late, which was a relief. But it summoned us to an examination by telephone, which would probably take “two hours,” it said. We would also have to send in advance a vast number of documents – bank statements, checks, proof that our children were dependents during the period for which we were being audited – all in English.
Our bank statements, invoices and receipts are in Hebrew of course. The letter said these would all need to be re-written by a “certified” translator, one with an Internet site to verify his or her credentials (and prices). No Hebrew speaking buddy would be accepted. Thankfully, there was no requirement for notification, which can run a good $100 per page.
I was audited a couple of years back by the Israeli tax office. They sent two women to my home office and grilled me over my business expenses. I had to call my accountant several times during the examination in order not to make a costly gaffe with my spotty Hebrew. In that case, my file was closed and I was off the hook. Hopefully it will be the same way this time.
Have you ever been audited by the IRS? I would love to hear about your experience. Please leave your comments on this blog.