In an August 10, 2022 letter to IRS Commissioner Charles Rettig, U.S. Secretary of Treasury Janet Yellen did not mince words in issuing her mandate:
“Specifically, I direct that any additional resources – including any new personnel or auditors that are hired – shall not be used to increase the share of small business or households below the $400,000 threshold….Instead, enforcement resources will focus on high-end compliance. There, sustained, multi-year funding is so critical to the agency’s ability to make the investment needed to pursue a robust attack on the tax gap by targeting crucial challenges, like large corporations, high-net-worth individuals and complex pass-throughs...”
A copy of the letter is linked HERE.
In furtherance of this mandate, the IRS will undoubtedly use its new-found money to fill the coffers of its Global High Wealth Industry Group, known in tax circles as the Wealth Squad. This group is made up of highly-skilled and specially-trained auditors, forensic accountants, and other specialists – such as financial products experts, engineers, and appraisers. Often times the group will consult and collaborate with IRS Counsel as well as personnel from the Office of Fraud Enforcement, the Office of Promoter Investigations, and even the Criminal Investigation Division. As set forth in the Internal Revenue Manual, the purpose of the Wealth Squad is “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.” IRM Sec. 22.214.171.124.1(1). Its stated goal is “to identify and examine high wealth taxpayers with the highest compliance risk in a consistent and efficient manner." IRM Sec. 126.96.36.199(5).
Having represented taxpayers against the IRS Wealth Squad, I can offer a simpler explanation: these audits are the tax equivalent of a full-body cavity search. They require pre-audit due diligence and advanced planning by a tax professional to develop strategies for managing anticipated tax issues, bolstering defenses for reported tax positions, and identifying/cultivating new defenses and risk-reduction measures.
If you have any questions about current IRS Exam activity, including the High Wealth Squad, or any other tax-related topic, feel free to contact me at (214) 749-2464 or email@example.com.