1. In an audit, you must convince the IRS that you reported all of your…
Audit Beware: IRS’ Global High Wealth Industry Group
A recent article in the Wall Street Journal discussed the new IRS’ Global High Wealth Industry Group. Over 1 year ago we warned readers of the new group when Commissioner Shulman announced its formation in an address to the American Institute of CPA’s during October of 2009. In his remarks, Shulman noted the need for a highly specialized audit unit to closely examine high-income taxpayers.
One year later, the group has started to make a name for itself and it isn’t a good one in some circles.
If you are a high wage earner and operate a hedge fund, make extensive use of trusts, have a privately held company, utilize flow-through entities or have offshore real estate holdings, be prepared for an audit. Those that are targeted can expect a particularly rigorous audit.
The new unit combines seasoned revenue agents (auditors) with offshore examiners and specialists capable of auditing every aspect of a person’s holdings.
Other developed nations are forming similar units. The IRS has suggested more cooperation in audits involving people that face taxes in more than one jurisdiction. In years past, individuals with assets in multiple countries could argue that their income was being taxed elsewhere. Those claims were often accepted as there was little cooperation between countries. That is starting to change
Given the IRS’ zeal for unreported offshore accounts and income, high wealth taxpayers playing the “audit lottery” may have more to worry about than audits. The IRS has also targeted people with unreported foreign source income and assets for criminal prosecution.
What should you do if targeted for an aggressive audit? First, have a heart to heart discussion with your accountant. If there is any risk of exposure, contact a tax attorney. Your tax attorney can then rehire your accountant under the attorney client privilege.
CPA’s do not enjoy the same confidentiality privileges that lawyers do. By having your lawyer hire the accountant, he or she is then protected by the same broad privilege as the lawyer. Nothing is worse than finding out your accountants were subpoenaed by the government and subsequently provided evidence against you. It’s not their fault; accountants simply do not enjoy a broad privilege.
Your accountant may be able to engage the IRS and defend the audit. If not, the lawyer can. Some CPA’s have experience in defending audits – it’s a special skill set – and others do not. If there is possible criminal exposure, leave it to the lawyers. Never be afraid to ask your lawyer or accountant for their experience in defending an aggressive audit. When it’s your liberty at stake, you want the best.
If the matter cannot be resolved at the audit level, you ultimately can take your case to U.S. Tax Court. You need a tax attorney for that. In one recent case we were able to reduce a $4 million dollar case to slightly more than $100,000, a forty-fold reduction.