New IRS Initiative Targets Tax Evasion by High-Wealth Individuals

Online, December 18, 2009 (Newswire.com) - Editors: IRS, Internal Revenue Service, Tax Lien, Levy

Date: 28. October, 2009

The IRS is set to launch a new initiative to uncover tax evasion by higher income individuals, IRS Commissioner Douglas Shulman said on October 26. The Global High Wealth Industry Group will examine sophisticated financial, business, and investment vehicles for tax avoidance. Shulman also appeared to predict that any future registration and testing of return preparers would exclude Circular 230 professionals. Shulman spoke at the AICPA National Tax Conference in Washington, D.C.
High-Wealth Individuals

Shulman described high-wealth individuals as "not your typical Form 1040 filers." The IRS cannot access compliance among the nation's wealthiest individuals by looking only at their Forms 1040, he cautioned. "A single high-wealth individual may have actual or beneficial ownership of numerous related entities, sometimes alone and sometimes along with other family members or business associates."

"The IRS will take a unified look at the entire web of business entities controlled by a high-wealth individual," Shulman said. The IRS intends to understand the entire economic picture of the enterprise controlled by the wealthy individual and to assess the tax compliance of that overall enterprise. "The IRS cannot do this by continuing to approach each tax return in the enterprise as a single and separate entity. We must understand and analyze the entire picture."

Shulman acknowledged that higher income individuals use sophisticated financial and investment arrangements for legitimate reasons. However, some of these arrangements mask aggressive tax strategies. The new initiative comes shortly after the IRS's offshore disclosure program ended (TAXDAY, 2009/10/15, I.5).

Targeted Individuals
"The IRS will look at individuals with tens of millions of dollars of assets or income," Shulman said. He indicated that the threshold could go lower.

The initiative will begin on a small scale, Shulman said. "Among our first steps will be a small number of examinations of high-wealth individuals that will use this integrated, or enterprise, approach." Shulman did not say how many initial examinations the Service will undertake, when the examinations will begin or how many individuals the initiative may eventually encompass.

Cross-Division Work
The Global High Wealth Industry Group will be administered by the IRS Large and Mid-Size Business (LMSB) Division, Shulman reported. Its scope, however, will not be limited to LMSB. "Private foundations and retirement plan assets fall under Tax Exempt and Government Entities (TE/GE) Division and flow-through entities are part of our Small Business/Self-Employed (SB/SE) Division." Personnel from across the IRS will be engaged in the examinations.

Return Preparers
In other news, Shulman said that the Service must improve its oversight of return preparers. The IRS recently concluded a series of public meetings about tax practitioners (TAXDAY, 2009/10/01, I.5) "The IRS needs to find a way to ensure that return preparers demonstrate their competency."

Some tax and consumer groups have called for the registration and testing of all tax professionals, including CPAs and attorneys. The AICPA has urged the Service to exempt tax practitioners covered by Circular 230. "I have heard your concerns and have some sympathy for them," Shulman said.

By George Yaksick, CCH News Staff

Prepared Remarks of IRS Commission Douglas Shulman Before the AICPA