Less than 1% of submitted US tax returns are subject to audit (0.86% in 2014).
The bad news is the primary statute of limitations for US federal tax audit has been doubled to 6 years from 3 years. This increases compliance costs clearly and has an effect on the eventual all-in audit cost. Mistakes are often repeated over tax reporting periods and interest and penalties will of course be accruing over a much longer period. Congress passed the Choice Improvement Act of 2015 which effectively overruled a Supreme Court ruling that capped the scope of tax audit to 3 years. There were select tax circumstances where the audit period was already 6 years, such as if >25% of one’s income was “omitted”. No statute of limitations applies if you never filed a return (the practical limit in these cases is deemed to be 10 years).
FATCA implementation has effectively made American living abroad un-bankable with few investment management options. The number of US Green Card holders choosing to relinquish their status is under-reported and growing.
There is a lot of commentary on the earnings recession the US is in the midst of, which could lead to an economic recession. It may be time to re-think a corporate tax amnesty to prompt the repatriation of foreign profits that has left trillions parked in the world’s financial centres (everywhere but NY). The spike in corporate debt issuance has been driven by many factors, stock buybacks being a particular area of folly it appears, but part of it has been the US corporation do not have cash liquidity in the jurisdictions where it is required to run their businesses in an optimal fashion. Tax inversions have been all the rage for several years (US to Europe in many cases) and with the Canadian dollar at $0.68 expect to see some headed North in 2016 (Corporate taxes in Canada are a full 13% lower than the US).
Ted Cruz thinks the IRS should be abolished, which should fully open the debate on a simplified tax code, with a flat tax as the anchor. The municipal bond market will of course watch developments closely. One thing is near certain, the US is going to need a much bigger debt ceiling. JCGIf you enjoy the content at iBankCoin, please follow us on Twitter