Field Audit Procedure when the Taxpayer and the Records are Located outside the United States

When both the taxpayer and the relevant books and records are located outside the United States, a traditional in-person IRS field audit is generally uncommon. As a result, the IRS will frequently conduct the examination through correspondence, virtual meetings, telephone conferences, or through a U.S.-based authorized representative acting on the taxpayer’s behalf. This approach is generally more practical and convenient for the taxpayer situated outside the United States. If the circumstances of the case require it, however, the IRS may request an in-person meeting or make other arrangements.

Examiners commonly issue Information Document Requests (IDRs) seeking copies of foreign records. The taxpayer may be required to provide electronic copies of records or otherwise make the records available for review.

If records are not voluntarily provided, the IRS has several tools available to obtain foreign information. These include issuing summonses to persons within the United States who control foreign records, using Formal Document Requests (FDRs) under Internal Revenue Code § 982 for foreign-based documentation, and utilizing various international information exchange mechanisms.

The IRS may also rely on tax treaties, Tax Information Exchange Agreements (TIEAs), and other international exchange-of-information programs to obtain records and information from foreign tax authorities. Through these procedures, the IRS may request ownership records, accounting records, bank records, and other information relevant to an examination.

Taxpayers living overseas are strongly encouraged to appoint a U.S.-based attorney, CPA, or Enrolled Agent using Form 2848 to represent them and avoid the need to travel to the United States.

If you are wondering what to do after receiving an IRS Audit Notice, ask yourself the following questions:

• Have you received an IRS audit letter or request for additional information?
• Does your audit involve foreign income, foreign accounts, tax treaties, or international tax forms?
• Would professional representation help you respond to the IRS and protect your rights?