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:
What can be done to mitigate the risk of an examination in the current or future years?
Reach out to your RSM tax advisor for additional detailed information and guidance.
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This article was written by Carol Warley, Alina Solodchikova, Cindy Hull, Michael Reeves and originally appeared on Aug 16, 2021.
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