Matthew Ledvina Opines on the Internal Revenue Service Wealth Squad Facing High Net Worth

August 06 20:11 2020

The IRS shall be beginning tests of different high net worth taxpayers that shall be staring on 15th of July. The particular audit will be following the IR’s concentrated efforts for coordinating the examinations of the high net worth people’s taxation returns. These exams shall be addressing partnerships, trusts, private foundations, and as well as other aspects based on certain taxpayers. Along with the coordinated campaign of IRS, the high net worth taxation payers can be expecting aggressive audits of IRS. In order to answer effectively, the individuals shall be requiring q strategy that s coordinated.

IRS stressing on high net worth people

As per opinion of expert US tax advisor Matthew Ledvina, TIGTA reported on 29 May 2020 that the IRS has failed to address high-income non-filers. TIGTA estimated 34 per cent of high-income non-filers owed an estimated $45.7 billion in taxes for the 2014 through 2016 tax years.

On the 18th of June, the LB & I division commissioner that is Douglas O’Donnell, declared that the IRS will start to work across the IRS division in order to address the IRS will start the examination of diverse high net worth individual worth starting at 15th July. The significant motive of the campaigns is for working across the IRS divisions for addressing sophisticated planning using by utilizing high net worth people. The IRS has not indicated that it considers “high net worth” for campaign purposes.

The IRS have established the Global High Wealth Industry Group in the year 2009 that have often been stated as the ‘Wealth Squad’ for strengthening its capacity to audit and collect taxation from the high net worth people, the non-US assets and the other related entities.

IRS has experienced booming scrutiny in order to fail the collecting taxation from the high net worth people. The TIGTA that is the Treasury Inspector General for Tax Administration’s 019 and 2020 Auditing Plans both have recommended that IRS prioritizes enforcement against the high-income people who have not filed the tax returns.

Wealth Squad Targets

IRS high net worth individual audits may address several areas utilized by high net worth individuals.These issues are likely to include pass-through, private foundations, partnerships and other and global matters.

1. Partnerships and Other Pass-throughs.

The campaign will likely target high net worth taxpayers with partnerships and other pass-through entities. O’Donnell indicated in his remarks that exam activity will address taxpayers with pass-through structures, such as partnerships, S corporations, and disregarded entities. The Bipartisan Budget Act of 2015 overhauled the partnership audit rules to make it easier for the IRS to audit partnerships and collect tax from those audits. Increased focus on high net worth audits brings the partnership audit changes back into focus. Partners and partnerships should review their structures and partnership agreements in light of the partnership audit changes before an exam begins.

2. Private Foundations in Focus. 

IRS examinations are expected to include individuals with private foundations. On 18 June, Tamera Ripperda, IRS Tax-Exempt and Government Entities Division Commissioner, stated that she expected examinations of private foundations to increase, linking individual compliance to private foundations.

High net worth individuals and families utilize private foundations to facilitate charitable giving and charitable activities. Private foundations can help build a family’s charitable legacy and help younger family members gain experience managing wealth and serving communities. The tax rules governing private foundations are complex. Private foundations are subject to several excise taxes and compliance requirements to ensure that foundation assets are devoted to charitable purposes, and to ensure that disqualified individuals do not obtain certain prohibited
personal benefits.

3. Traps for Multi-jurisdictional Families. 

Individuals with non-US assets and income are subject to special tax and reporting requirements for offshore accounts and assets. The IRS has focused enforcement efforts on taxpayers with offshore bank accounts, assets, and structures for several years. Reporting and compliance for these assets can be a trap for the unwary, especially for taxpayers living outside the United States, globally mobile individuals, and multi-jurisdictional families. The IRS maintains a voluntary disclosure practice for individuals to regularize non-compliance with US international tax and reporting obligations.

How to manage a Wealth Squad Audit?

The compliance campaigns of IRS are focusing on the IRS resources on subjects that the IRS considers common for the taxpayers.

1. IRS Campaigns. 

In the year 2016, the LB&I declared that it have been shifting its audit tactics and utilizing the “campaigns” that are meant to detect the serious most tax compliance risks, improving return selections, creating precise plans for moving taxpayers towards any compliance, and then deploying the resources that are limited efficiently. LB&I has proclaimed sixty-five campaigns since begging of 2017, and fifty-four campaigns that are currently active. So-called “treatment streams” for each campaigns differ, but they comprise issue-based exams, the publication of global practice units and soft letters. Taxpayers under audit must determine which active LB&I campaigns affect both their individual tax returns directly or any related entities and prepare for explaining if the position deviates from campaign approaches as outlined in any of the practice units.

2. Information Document Requests. 

The high net worth individuals designated for exams can be expecting the IRS to issue a single or more Information Document Requests that is IDR during the auditing process. The IRS can also request existing information, data or records that might be similar to shaping someone’s tax liability. The high net worth taxpayers must prepare to interact with their team examination regarding the availability of requested data as well as the expected deadline to respond to IDRs prior to the IRS have issued a final IDR. If a particular payer of tax taxpayer fails responding to IDR by the deadlines, the examiner of IRS follows a three-step IDR enforcement process those are mandatory.

The IRS examiner shall be issuing a notice of delinquency to the taxpayers within ten business days of the IDR response date. If a taxpayer fails to meet the deadline in the delinquency notice, the examiner issues a pre-summons letter. If a taxpayer fails to respond to the pre-summons letter, or if the IRS believes the taxpayer’s response is incomplete, the examiner will coordinate with IRS counsel to issue a summons. If a taxpayer does not comply with the summons, the Department of Justice can file a petition in a U.S. district court to enforce the summons.

3. Information exchanging revolution Underlies the International Enforcement

The revenue shortfalls and down turn in economy caused by the COVID-19pandemic comes at a time as the IRS have boosted the access to the taxpayers details. The age of transparency of global wealth management industry’s offered IRS with an unprecedented percentage of the non-US financial account details from financial institutions to foreign governments.

The multi-jurisdictional individual’s experiences additional pressure in the US audits as the US audit might have trail on the effects, such as activating enforcement actions by certain authorities outside United States. Taxpayers who are undergoing audits must understand the information scopes that are reporting obligations and how exactly governments cooperate for enhancing enforcement on the cross-border issues.

How Can Taxpayers get ready?

According to recommendations of Matthew Ledvina, High net worth people must be ready for addressing problems that are linked to their income sources, foreign financial accounts, estate planning, gifts to members of family, assets transferred to charitable organizations  or private foundations or, and to classify assets that they own both outside and inside the United States. Augmented scrutiny of the audits of IRS high net worth people makes it quite likely that the IRS shall be considering boosting enforcement measures.

High net worth payers of tax must ensure that they understand how the audit campaign of IRS can impact them and also which issues, positions, they should be ready for defending in case they are selecting for any examination.

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