IRS COMPLIANCE

IRS SHARPENS APPROACH TO AUDITS OF HIGH NET WORTH INDIVIDUALS

The IRS is pursuing a wide range of initiatives aimed at taxpayer noncompliance. Among these is the recent creation of a new enforcement unit, the Global High Wealth Industry Group. As described in prepared remarks by IRS Commissioner Douglas Shulman in December 2009,  this new unit will centralize and focus IRS compliance expertise involving high net worth individuals and their related entities. Shulman noted that many high net worth individuals make use of sophisticated financial, business, and investment arrangements with complicated legal structures and tax consequences such as actual or beneficial ownership in trusts, private foundations, privately-held companies, partnerships and other flow-through entities either alone or with other family members or business associates.

In defining high net worth individuals, at least initially the threshold is anticipated to be those with “tens of millions of dollars of assets or income,” according to the IRS. Among the first steps will be a small number of examinations of these individuals using a new integrated or enterprise approach. This new approach will look at the entire web of business entities controlled by the individual under examination. It is anticipated that the scope of the examination will not be limited to income taxes but may address estate and gift tax filings as well. Based on these initial enterprise examinations, the IRS will then define the scope of future work.

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