Last month, the commissioner of the Large Business and International division of the Internal Revenue Service (IRS) announced plans to increase audits on high net worth individuals. The examinations are expected to target several hundred individuals with assets or earnings exceeding ten million dollars or more than $100,000 of projected tax due. The audits are expected to cover multiple tax years and will be primarily focused on individuals with foreign activity and controlled partnerships, S corporations, trusts and private foundations.
The IRS has indicated it plans to seek cooperation from multiple IRS divisions, and employ augmented data analytics as part of their enforcement action. Termed a “Global High-Wealth Audit”, this holistic tactic is a change from the IRS’ normally siloed approach whereby the IRS hopes to improve the effectiveness of audits of high net worth individuals. They indicated this improved audit approach has already identified over 1,000 private foundations that are linked to global high-wealth enterprises, which will face heightened scrutiny over self-dealing and disqualified loan issues, among others.
The IRS began identifying possible audit targets in July and will continue through September 30. They expect affected taxpayers to receive notices this fall.
This initiative appears to be a response to the Inspector General of the U.S. Department of Treasury’s report issued on May 29, 2020 which estimated the average annual Tax Gap (the estimated difference between the amount of tax taxpayers legally should pay and the amount actually paid timely without IRS involvement) to be $441 billion for tax years 2011 through 2013 based on audit findings for those years. The report went on to question the effectiveness of the service in addressing high-income taxpayers.
They are not alone. The UK’s HM Revenue and Customs department also issued plans to increase the audits of high net worth individuals in the coming months. The government funding shortfalls fueled by the COVID-19 pandemic crisis may also be a factor and may force other countries to follow suit.
How Can We Help?
While any tax audit is generally unpleasant, the comprehensiveness and complexity of a global high wealth audit will undoubtedly make the experience extraordinarily so. In representing our clients, our goal is to make this as easy as possible on them.
High net worth individuals with global assets or related entities should be proactive in preparing for a potential audit. The professionals at SingerLewak can meet with you in advance to help you understand your overall situation, review tax positions, identify potential risk areas or areas of noncompliance, and prepare you for the audit process. We can meet with the IRS on your behalf and serve as a liaison between you. We can help you organize and prepare responses to IRS questions and document requests, which are often capacious.
This can be a lengthy back-and-forth, anxiety-ridden process for most taxpayers, but having a trusted and knowledgeable ally can make all the difference in both the experience and the outcome. With a practice that spans all the target areas of the global high-wealth audit, extensive experience in working with the IRS and a proven history of completing audits with “no-change” results, SingerLewak is uniquely positioned to serve as this ally for you. Please contact Shannon Carlson at [email protected] with any questions or for more information.