The power of the IRS is far-reaching and as technology opens new avenues for the wealthy and adventurous to explore, the IRS is not far behind. Case in point is the news that the IRS is to serve summons to obtain identities of coinbase account holders. This means that people trading in virtual currency such as Bitcoin may be served a John Doe summons to ascertain their identities and ensure they have been paying taxes. Whether you are uber-wealthy or just making ends meet, the IRS can be a daunting foe that continues to extend its reach to catch those who don’t pay their taxes. Many high-achieving professionals such as doctors, accountants and engineers make the mistake of believing that their professional standing will shield them from entities such as the IRS. This is a dangerous assumption and anyone that is required to pay his or her taxes should avoid the pitfalls of litigating on the basis of reputation. Wealthy individuals may be prone to assuming their wealth and stature can protect them against an audit, but do they have easier IRS audits in the first place?
The wealthiest individuals and companies in the United States have both easier and more challenging IRS audits, usually due to the same attributes. Some factors such as amount of assets, access to high level professionals and complex estates make the uber-wealthy both frequent IRS targets but also far more equipped to handle IRS audits than the average person.
For instance, the wealthiest population has significant income and assets. This typically means more attention from the IRS. If you declare over $10 million dollars in assets you are likely to be audited. In fact, the IRS has a special division dedicated to high-wealth audits called the Global High Wealth Industry Group, also known as The Wealth Squad, which is the IRS equivalent to a SWAT team. The Wealth Squad looks at the individual returns as well as associated corporations and business interests. These IRS representatives are skilled at examining complex, high net worth individuals and their businesses with a fine-tooth comb and making sure they are paying their fair share of the tax bill.
However, because the wealthy have an abundance of financial resources, they are also likely to have high-priced professionals working on their behalf. If business entities are set up correctly and income, assets, deductions, profits and losses are all declared correctly, an exceptionally wealthy person may not owe the government any additional money. Skilled financial attorneys, CPAs and investment advisors can all work together to put together a comprehensive and legally effective tax strategy that can hold up against an IRS audit. They can also help the wealthy utilize tax loopholes and maneuvering to pay as little tax as possible.
Resources for IRS audits are limited. There are currently fewer auditors than there have been in previous years. This means audits are being limited to those groups that raise the most red flags. If you are extremely wealthy, with more than $10 million in income, or declare zero income, you are more likely to be audited. In addition, if you have international income you become more likely to be audited. Typically, wealthier individuals will have oversees interests and/or businesses. This escalates the likelihood of an audit. Large estate tax returns also raise a red flag for the IRS and may trigger an audit. These IRS triggers are mostly items experienced by the wealthy, making high-net worth individuals much more likely for an IRS audit.
IRS audits for the wealthy are different than the those for the average person. They tend to be more complex and even have their own division of experts to comb through complicated estates and assets. Wealthy individuals need to surround themselves with experienced professionals that can create and implement legal, tax-efficient strategies and defend their choices when faced with an audit. The wealthy are more likely to face an audit, but they should also have access to higher-priced resources to defend themselves.
The IRS has long investigated those companies and individuals that are suspected of dodging their taxes. IRS criminal investigations have resulted in steep fines and even jail time for those found guilty. Regardless of your income bracket or net worth, it is important to hire an experienced IRS tax attorney if you ever find yourself at the wrong end of an IRS lawsuit.
