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IRS Audits More Wealthy Americans

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Monday, 04 Apr 2011 08:17 AM Current | Bio | Archive

The latest information released by the federal government shows that audits of America's high net worth taxpayers are going up dramatically.

Audit figures are up 75 percent for the super-rich, 54 percent for the mid-rich, and up 15 percent for those with a million. Basically, if you make more than a couple of hundred thousand dollars income, you can expect an audit.

The IRS formed what they call the Global High Wealth Industry group in 2009 and have begun ramping up their activities ever since. This is in addition to the regular audits done by the IRS on just the average taxpayer. Their audit rates are going up too, but not because of a special focus by the IRS like the GHWI group.

How the IRS picks a typical return for audit is a closely guarded secret. But it is widely accepted that it occurs in one of four ways: The IRS has a computer scoring system; it does information matching; it picks up items from a related audit and it determines an audit is needed from information it receives from various sources about abusive tax avoidance transactions.

The GHWI group is a specialty organization. It is housed in the Large and Mid-Size Business operating division. The IRS is still in the early stages of getting organized but has the goal of focusing the compliance expertise on where the money is and where there may be taxes to collect. The IRS recognizes that this group of taxpayers has complicated returns and therefore it takes a team of specialists to audit them.

The IRS has hired experienced auditors to staff the GHWI group and has been conducting audits. It should be expected that as they gain experience in the initial audits, they will be able to adjust their audit approach and refine the audit techniques.

The GHWI group is focused on strengthening the audits of high income individuals, or those having annual income in excess of $200,000 or joint filers having income in excess of $250,000. This closer scrutiny involves particular issues of this group of taxpayers as matters related to partnership income, flow-through entities, interests in foreign assets, and those using complex tax minimization techniques.

This is not a limited list of what the IRS is looking for in these audits. The commissioner of the IRS was quoted recently as providing a virtual laundry list of matters that will be looked at for audit. This is a tremendous spectrum of possible transactions, entities, and possible beneficial interests. And this will be done on a global basis.

In one sense, the IRS is providing the economy with job security for the accountants and lawyers who will be handling these tax controversies for clients and collecting fees along the way. Typically a significant audit could go on for a year to 18 months. Now all bets are off. It may reasonably be expected that if technical issues do arise and the IRS team has to bring in other specialists, these audit examinations may go on for years.

It is understandable that the IRS wants all taxpayers to know that there is integrity in the tax system. That the rich will be held accountable to the IRS — or even a little more so — as the average taxpayer.

But until the current tax code is reformed or replaced, the increase in audits by the GHWI group certainly is going to create an absolute need by taxpayers for professional tax controversy specialists.

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Kleinfeld
The latest information released by the federal government shows that audits of America's high net worth taxpayers are going up dramatically. Audit figures are up 75 percent for the super-rich,54 percent for the mid-rich, and up 15 percent for those with a million....
denis,kleinfeld,Audits,Wealthy,IRS,taxpayers
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2011-17-04
Monday, 04 Apr 2011 08:17 AM
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