IRS to Ramp Up Audits
The IRS is ramping up audits and enforcement of wealthy taxpayers, sparking alerts from financial advisors and tax professionals. With billions in extra IRS funding and heightened scrutiny on high-net-worth filers, practitioners anticipate expanded probes and pressure on clients.
Per a recent Government Accountability Office report, each audit hour of a $10M+ household generates $13,000 in recovered revenue—an astonishing ROI for the federal government. Before recent budget increases, shrinking resources caused audit rates for millionaires to plunge from 7.2% in 2011 to 0.7% in 2019. Now, new programs targeting millionaire noncompliance have already driven $520M in collections following a big boost to the IRS funding last year.
Clearly, the odds of IRS inquiry are rising for top earners. Advisors urge vigilance given uncertain reforms, sunset provisions from the 2017 tax laws, and more. Financial advisors are speaking to their clients in support of them working with solid tax professionals, putting emphasis on the need for not just compliance but proper tax planning in the wake of more scrutiny of returns.
The enforcement pivot could mean less scrutiny of middle-income taxpayers. Auditing the wealthy uncovers more unpaid tax, and each dollar spent auditing top 10% filers earns $12. But it also strains IRS resources, as unraveling sophisticated avoidance takes substantial expertise. The Government Accountability Office (GAO) reports focus groups citing numerous challenges, like tracing income across complex entity structures.The IRS however, lacks comprehensive evasion data and evaluations of audit selection and training. Part of the funds added to the IRS budget were intended to enhance training for future audits.
The scrutiny coincides with rising expatriation talks, especially if a pending Supreme Court case strikes down unrealized capital gains taxes. If the exit tax is struck down, we are likely to see a flood of wealthy taxpayers departing the U.S. Even if the levies stand, some may pay the tax once to escape the US system for more forgiving tax structures abroad.
Anxiety is permeating high-net-worth clients amid shifting reforms, crackdowns on techniques like private placement life insurance, and more. With tax rules in flux, practitioners must guide clients in lawful planning while bracing for IRS attention.
Christine Gervais
Christine Gervais is a licensed CPA, using her skills to help businesses grow and achieve their fullest potential. Christine has a Master’s degree in accounting from Southern New Hampshire University in addition to holding her CPA license for over a decade. Notably, Christine is a nationally recognized speaker providing education to other CPAs on how to best serve clients as well as instruction on a wide variety of topics for business owners on how to maximize success. Christine prides herself on the value she can bring to clients with her extensive tax knowledge and providing strategic, forward-thinking financial strategies to help clients grow. When not behind her desk, you can find Christine spending quality time with her daughter and stepson or tending to the family’s excessively loved farm animals.