Internal Revenue Services (“IRS”) has allowed U.S. Citizens and Resident Aliens Abroad an automatic 2 month extension of time to file their tax return and pay any federal income tax that is due.

You will be allowed the extension if you are a U.S. citizen or resident alien and on the regular due date of your return:

(i) You are living outside of the United States and Puerto Rico and your main place of business or post of duty is outside the United States and Puerto Rico, or

(ii) You are in military or naval service on duty outside the United States and Puerto Rico

If you use a calendar year, the regular due date of your return is April 15, and the automatic extended due date would be June 15.

In case of Married Taxpayers who are filing joint returns, either you or your spouse can qualify for the automatic extension. If you and your spouse file separate returns, this automatic extension applies only to the spouse who qualifies.

How To Get The Extension:
To use this automatic 2-month extension, you must attach a statement to your return explaining which of the two situations listed earlier qualified you for the extension.

Due to improved detection systems and computerized checks, the IRS can more easily identify red flags that trigger audits. It typically starts with a letter requesting more information and can lead to in-person meetings. It’s usually triggered by a tax return that contains something unusual, such as an above-average deduction or change in income from previous years. As long as the taxpayer can defend his filings with the proper paperwork and logic, they have nothing to worry about.

Here are some of the signs that you need to look into:

1. Making lot less money last year
The IRS looks out for any major changes in income, which can signify that a taxpayer is under-reporting his earnings. Since the IRS tracks historic data, people who suddenly start reporting much less income can be flagged for an audit.

2. Making too much money
Although the overall individual audit rate is about 1.11%, the odds increase dramatically for higher-income filers. IRS statistics show that people with incomes of $200,000 or higher had an audit rate of 3.93%, or one out of slightly more than every 25 returns. Report $1 million or more of income? There’s a one-in-eight chance your return will be audited. The audit rate drops significantly for filers making less than $200,000: Only 1.02% of such returns were audited during 2011, and the vast majority of these exams were conducted by mail. We’re not saying you should try to make less money — everyone wants to be a millionaire. Just understand that the more income shown on your return, the more likely it is that you’ll be hearing from the IRS.

3. Deductions above average
IRS keeps a track of average deduction in each category. The IRS looks for higher-than-average deductions in each category as a signal that things may not be right.

4. If you’re paid in cash
The IRS knows that you can more easily under report what you earn. If you’re honest about your own accounting you can avoid that audit or if audited, escape heavy fines and fees.

5. If you earn income from selling items online
If you own an online business and make a profit, make sure you report your income. Keep in mind that your selling or payment processing service, such as eBay or PayPal, is reporting sales and the IRS will notice if this income is missing on your tax return.

6. Failing to report all taxable income
Since employers send copies of all 1099 forms and W-2 forms to the IRS as well as to you, if you lose your version or forget to file it with your taxes, the IRS can flag your return for review. You want to make sure the information you provide to the IRS matches up with any other information they are receiving about you.

7. You work for yourself
It might not seem fair, but being self-employed can raise red flags for the IRS, especially if you claim your home office and other costs as business expenses but don’t earn much income. Keep careful track of all paperwork so you can defend any deductions and credits you take.

8. You claim losses from a hobby
While writing off business expenses can be legitimate, it’s illegal to pretend a hobby is a business and then write off the related expenses. For example, if you enjoy woodworking, you might practice the craft on the weekends for fun. Doing so does not enable you to write off the cost of wood and tools. (If you were selling those creations online, that would be a different story.)

9. Deducing home office (or car) expenses
While plenty of people can legitimately claim home office expenses on their taxes, some people do so incorrectly. Merely checking email from home after work, for example, does not justify a home office deduction. In order to qualify, the home office must be used for work only. Likewise, claiming a car as a business expense can also raise red flags. If you are doing this keep careful track of how much use of the car for business versus personal use.

10. You included expensive meals and entertainment costs among your deductions
The IRS often double-checks these types of claims to make sure they are legitimate business expenses.

11. Taking large charitable deductions
IRS is on the lookout for people who inflate their charitable donations, and that the agency takes a close look at taxpayers who say they donated $500 or just under, since anyone who donates more than that amount must file form 8283.

12. You maintain an overseas bank account
The IRS has added more reporting requirements this year for people with money in foreign accounts. Failing to report one could trigger an audit.

13. Your numbers don’t match
If numbers on various forms don’t match or add up correctly, the IRS is likely to notice and look into any disparities. So treat your taxes like a final exam in algebra and check over all the numbers before submitting.

Although there’s no sure way to avoid an IRS audit, you should be aware of red flags that could increase your chances of drawing unwanted attention from the IRS.

In a major development, U.S. declares “FATCA partners” with five countries whereby each pledge more tax information sharing between the Governments. The five countries are France, Germany, Italy, Spain and the United Kingdom.

Extracts of the report:

Under Treasury’s proposed “new government-to-government framework for implementing FATCA,” the governments of France, Germany, Italy, Spain and the United Kingdom will work together to create a means to collect the information from their banks and send it to the United States.

Treasury said that once these five “FATCA partner” countries finalized the framework, banks in those countries would not have to enter into separate data disclosure agreements with the IRS.

In addition, in a reciprocating agreement, Treasury said the United States would collect and share information with the five participating EU countries about accounts held by their citizens in U.S. financial institutions.

For nations not invited to become “FATCA partners” with the United States, banks and financial institutions in those countries must still cooperate on their own with the IRS.

Noticeably absent from the new framework were major international banking nations such as Canada, Switzerland and the Netherlands, not to mention tax haven jurisdictions such as Ireland, the Cayman Islands and Bermuda.

Entire Reuters article can be read here
http://www.reuters.com/article/2012/02/08/usa-tax-treasury-fatca-idUSL2E8D82J120120208