The IRS takes aim at high net worth individuals

A discussion on the IRS concern with non-filers and what can be done to mitigate the risk is provided in this article.

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The IRS takes aim at high net worth individuals

ARTICLE | August 16, 2021 | Authored by RSM US LLP

For the past decade, the IRS has become increasingly concerned with the upward trend in both the quantity of taxpayers who do not file required tax returns (non-filers) and the amount of tax that is foregone because of noncompliance. These issues create a significant difference between what taxpayers should pay and what they actually pay on time, commonly referred to as the “Tax Gap.”  After study and review, the IRS determined that high-income taxpayers comprise a large percentage of the amount of the tax gap, even though they represent a small fraction of the taxpayer population. 

In an effort to close the tax gap, the IRS announced a compliance initiative that targets high net worth taxpayers with interests in foundations, partnerships and other pass-through entities. Executed through a series of IRS audits, the initiative will be ongoing and does not have an expiration date. The IRS’s Large Business and International Division formed the Global High Net Worth Group (“GHW”), commonly referred to as the “Wealth Squad.” to conduct these audits. The Wealth Squad takes a holistic approach to examinations, which may involve examining entities controlled by the high net worth taxpayer.

The American Families Plan, proposed by the Biden Administration, calls for an additional $80 billion in funding for IRS enforcement activities. There does not currently appear to be broad Congressional support for this level of funding however a significant increase in funding is expected.

High net worth individuals of interest to the Wealth Squad are those with one or more of the following characteristics:

  • Majority ownership or significant influence over an entity or entities
  • Control or substantial influence over a private foundation
  • Substantial charitable contribution deductions
  • International tax filings or international transactions
  • Family offices
  • Self-employment income or employment tax issues
  • Information return filing requirements
  • Expense deductions for the use of yachts and airplanes
  • Uses complex tax planning to significantly reduce taxable income

What can be done to mitigate the risk of an examination in the current or future years?

  • Maintain good records and be able to substantiate the business purpose of every deduction and tax basis in property
  • Satisfy all formal requirements relating to entity formation and registration
  • Keep separate ledgers to easily segregate business activities
  • Compile a complete list of commonly targeted assets such as foreign bank accounts, foreign trusts, and foreign business interests and ensure proper reporting has been prepared and filed
  • Understand gifting practices and have records available of gifts reported on gift tax returns and those not reported
  • Use business credit cards for business purposes only
  • Do not try to move expenses around and play the audit game
  • Be wary of tax promoters who promise large tax deductions
  • Be honest and open regarding the extent and location of your assets and accounts– understand that the IRS can summon records from third parties and can share information with other countries
  • Determine issues that could trigger an examination of the tax return and consider filing an amended return, if necessary
  • Ensure there is a business purpose for transactions with related private foundations
  • Conduct proper due diligence on any transaction with a related tax benefit, including documenting any legal or accounting opinion

Reach out to your RSM tax advisor for additional detailed information and guidance.

Let’s Talk!

Call us at (541) 773-6633 (Oregon), (208) 373-7890 (Idaho) or fill out the form below and we’ll contact you to discuss your specific situation.





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This article was written by Carol Warley, Alina Solodchikova, Cindy Hull, Michael Reeves and originally appeared on Aug 16, 2021.
2022 RSM US LLP. All rights reserved.
https://rsmus.com/insights/services/private-client/the-irs-takes-aim-at-high-net-worth-individuals.html

RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each are separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/aboutus for more information regarding RSM US LLP and RSM International. The RSM(tm) brandmark is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.

KDP is a proud member of RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.

Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise, and technical resources.

For more information on how KDP LLP can assist you, please call us at:

Oregon Office:
(541) 773-6633

Idaho Office:
(208) 373-7890

IRS issues employee retention credit gross receipt exclusion procedure

Rev. Proc. 2021-33 allows exclusion of PPP, restaurant revitalization and shuttered venue operator grants from ERTC gross receipts test.

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IRS issues employee retention credit gross receipt exclusion procedure

TAX ALERT | August 10, 2021 | Authored by RSM US LLP

In very welcomed news, the IRS released guidance allowing employers to exclude Paycheck Protection Program (PPP) loan forgiveness, Restaurant Revitalization Fund (RRF) grants, and Shuttered Venue Operator Grants (SVOG) from the Employee Retention Tax Credit (ERTC) gross receipts calculation. 

Background

Eligibility for the ERTC may be dependent on the relative reduction in gross receipts between periods (for more background on the ERTC, read our article here). For example, an employer that can demonstrate at least a 50% decline in gross receipts for a quarter in 2020 may be eligible. For 2021, the employer that can demonstrate at least a 20% decline in gross receipts may be eligible. To determine gross receipts, the ERTC requires employers to look to section 448(c) and Reg. section 1.448-1T(f)(2)(v) or section 6033 and Reg. section 1.6033-2(g)(4) depending on the classification of an entity. 

In this recent revenue procedure, the IRS concluded that congressional intent was to allow employers to participate in the ERTC in conjunction with the aforementioned loan forgiveness or grant programs in the CARES Act and that including these items in gross receipts may preclude eligibility for some employers that would otherwise be eligible. As a result, the IRS issued a safe harbor election in Rev. Proc. 2021-33 to exclude PPP loan forgiveness and the relief grant amounts in the calculation of gross receipts for ERTC eligibility calculations. 

RSM INSIGHT:

These sections of the Internal Revenue Code and regulations would normally require the inclusion of tax-exempt income such as PPP loan forgiveness, restaurant revitalization grants, and shuttered venue operator grants. This exemption is only for the ERTC and does not change reporting for any other tax reporting purpose, including Form 990 reporting.

Election of safe harbor for ERTC gross receipts calculation

Employers that wish to elect the safe harbor method should consistently exclude amounts related to PPP loan forgiveness, RRF grants, and SVOGs from ERTC gross receipt calculations for all relevant periods. Additionally, all employers treated as a single employer under the ERTC aggregation rules for the employer must apply the safe harbor. 

Employers are able to revoke this election, should they so choose, by adjusting all affected employment tax returns.

Final thoughts

This safe harbor is only applicable to the ERTC gross receipts computation and only exempts PPP, RRF, and SVOG. Employers should determine if they received any other funding sources or other non-traditional items that should be included in ERTC gross receipts. For example, for tax-exempt entities, the ERTC credit amount itself was not eliminated from the gross receipt calculation.

The ERTC refund amount is not income to the employer but does cause a reduction in the tax deduction for the year in which the qualified ERTC wages are paid. Given the upcoming tax return deadlines for 2020, employers and their advisors need to determine ERTC credits for 2020 fairly soon to apply them to the tax return. Otherwise, the employer may have to amend the 2020 tax return to reduce the compensation tax deductions by the ERTC refund amount.

The guidance issued in Rev. Proc. 2021-33 is a continuation of recent guidance in regard to ERTC, including guidance released last week in Notice 2021-49 as discussed in our recent tax alert. Employers should contact their tax advisor for more information on ERTC and the safe harbor election.

Let’s Talk!

Call us at (541) 773-6633 (Oregon), (208) 313-7890 (Idaho) or fill out the form below and we’ll contact you to discuss your specific situation.





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This article was written by Anne Bushman, Karen Field , Ryan Corcoran, Maureen Hansen and originally appeared on 2021-08-10.
2022 RSM US LLP. All rights reserved.
https://rsmus.com/insights/tax-alerts/2021/irs-issues-employee-retention-credit-gross-receipt-exclusion-pro.html

The information contained herein is general in nature and based on authorities that are subject to change. RSM US LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM US LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.

RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each are separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/aboutus for more information regarding RSM US LLP and RSM International. The RSM(tm) brandmark is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.

KDP is a proud member of RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.

Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise, and technical resources.

For more information on how KDP LLP can assist you, please call us at:

Oregon Office:
(541) 773-6633

Idaho Office:
(208) 373-7890