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More Money, More Audits: IRS Proposes Three-Fold Increase to High-Wealth Audit Group

By Anthony P. Daddino on October 30, 2023
More money for the IRS means more audits for those with more money. It’s just that simple.

Last week, Eric Cirelli of the IRS Large Business and International (LB&I) Division gave an update on the division’s priorities at the UCLA Tax Controversy Institute. A seemingly-core priority is the expansion of the IRS’ global high wealth group. According to the IRS, the global high wealth group “was formed to take a holistic approach in addressing the high wealth taxpayer population; to look at the complete financial picture of high wealth individuals and the enterprises they control.” The IRS will identify a “key case” and include “related income tax returns where the individual has a controlling interest and significant compliance risk is deemed to exist.” The related cases, called “enterprise” cases, may include “interests in partnerships, trusts, subchapter S corporations, C corporations, gift tax or estate returns.” The IRS has dedicated an entire section of the Internal Revenue Manual to its global high wealth group, linked HERE.

Back to the update: LB&I Division announced its plans to triple the size of the high-wealth group, from two to six offices. This announcement follows a report by the Treasury Inspector earlier this year, recommending that the IRS allocate more resources to global-wealth exams, as well as the release of an IRS Job Aid for auditing BBA partnerships. LB&I Division noted that more than 50% of the high-wealth audits involve passthrough partnerships.

Why is the IRS focusing so heavily on high-net-worth taxpayers? Shouldn’t the IRS seek to improve compliance at all levels to improve the integrity of the federal self-assessment system? One possible explanation for the IRS’ focus is expectations. With the funding windfall provided by the Inflation Reduction Act, the IRS may feel the pressure to produce increased collection revenue to justify it. And while high wealth taxpayers have the means to professionally push back against IRS, enforcement statistics show that the IRS is fishing in the right pond.

If you have any questions about this Blog post or any other Treasury, IRS or tax-related matter, feel free to contact me directly at (214) 749-2464 or adaddino@meadowscollier.com.