The IRS recently told taxpayers it is now auditing more high-net-worth individuals. It’s important to prepare, in case you find yourself the subject of one of these audits.
The IRS originally formed a team of tax collectors in 2010 to look for high-net-worth individuals who may have taken advantage of loopholes or been overly aggressive on their tax filings. The group was officially named the Global High-Wealth Industry Group (GHW) in the Large Business and International Division (LB&I), but colloquially called The Wealth Squad.
Now, they have now resurrected this group to resume the task they were charged with.
What Does the Wealth Squad Do?
The Wealth Squad, made up of auditors specifically trained to look at high-wealth individuals, examines their income sources and any potential tax-evasion strategies they might employ, including:
- Complex domestic financial affairs
- Businesses or entities they control, including pass-through entities
- Offshore accounts
- Trust accounts, including foreign trusts
It’s no secret that the IRS has limited auditing resources; the GHW team was formed to conduct audits most likely to yield the biggest results.
IRS investigations require a lot of time and money, so deploying those resources to collect a couple hundred dollars from an average taxpayer is not efficient when those same resources could be put toward uncovering tens of thousands in unpaid taxes from higher-net-worth individuals.
In addition, there are far more high-net-worth individuals today than ever before. In the 1980s, it was extraordinarily rare to be a billionaire, with only a few in the entire country. In 2019, the combined net worth of the Forbes 400 was $2.96 trillion, and you need a net worth of at least $2 billion just to make the list.
How to Protect Yourself
Low-income Americans have little risk of audits, with fewer than 1 percent targeted each year. If your income or net worth is over $10 million, however, you have about a 1 in 3 chance.
Those with complex and sophisticated financial, business and other tax arrangements also stand a higher chance of being audited. Although these arrangements can be perfectly legal and valid, it’s still important to engage knowledgeable tax advisors—attorneys, accountants, and wealth managers—who can take a close look at your finances and legal structures to ensure that everything is in order before the IRS discovers a problem. This is especially true if you have foreign bank accounts or trusts, or business interests overseas.
Any filing, position, or statement to the IRS can be amended, refiled, or withdrawn until you receive the dreaded audit letter. Once you are under audit, do not make changes.
Talk to Cantley Dietrich
If you are concerned about your financial situation or think you may be at higher risk with the increased scrutiny on high-net-worth individuals, talk to an advisor at Cantley Dietrich today and learn more about how you can be prepared in case of an audit.