The Internal Revenue Service (IRS) announced in June a renewed focus on auditing high net-worth individuals and their related entities. First, there is an initiative to collect taxes from individuals who have not filed federal income tax returns for 2018 or earlier years. The IRS estimates that billions are lost in tax revenue from these non-filers. Second, the IRS plans to examine several hundred high-income households that have either a private foundation or related pass-through entities such as a partnership or S-Corporation. The IRS is particularly interested in determining whether private foundations have engaged in prohibited “self-dealing” transactions.
The IRS will place particular attention on taxpayers who have foreign assets such as foreign bank accounts, offshore retirement accounts, foreign trusts, and business interests in entities holding foreign accounts. The initiative will begin in mid-July and will involve high-net-worth taxpayers with pass-through entities who have taken advantage of changes under the Tax Cuts and Jobs Act of 2017 (the TCJA).
This campaign comes in light of a recent report issued by the Treasury Inspector General of Tax Administration who stated that over the past few years, a significant portion of high-wealth tax returns were never audited. The new audit campaign will be headed by the Global High Wealth Industry Group of the Large Business and International Division, often referred to as the “wealth squad.” The “wealth squad” is a specialized, experienced group of examiners solely focused on conducting audits of high-income/high-wealth taxpayers. These auditors are specially trained to examine complex domestic financial affairs, offshore accounts, foreign trusts, and entities controlled by the taxpayer, including partnerships, corporations, foundations, and trusts.
High-net-worth individuals who are concerned that this audit campaign could impact them or who have already received a notice from the IRS should reach out to their Schneider Downs tax advisor.
