Yes—especially in recent years, the IRS has intensified its efforts to identify and audit wealthy individuals, complex pass-through entities, and large corporations. Funding from the Inflation Reduction Act of 2022 has enabled the agency to expand its workforce and focus on sophisticated returns and sophisticated business arrangements. In addition to creating a new specialized unit within the Large Business and International Division (LBI) in 2023, the IRS also relies on its Global High-Wealth Industry Group, informally known as the “Wealth Squad,” to enforce compliance among taxpayers with substantial earnings. If you earn a high income or maintain extensive business structures, your audit and criminal tax investigation risk is significantly heightened.
What Is the “Wealth Squad”?
Formally called the Global High-Wealth Industry Group, the Wealth Squad was formed by the IRS in 2010. Its main goal is to audit and investigate tax returns filed by individuals in the highest income brackets. The group’s core philosophy is “to take a holistic approach in addressing high-wealth taxpayers to view the complete financial picture of the taxpayer and the enterprises that they control,” including partnerships, trusts, corporations, private foundations, and other interests.
- Partnerships and S Corporations: High-income individuals often use pass-through entities like partnerships, S corporations, and disregarded entities to minimize their visible income or claim unjustified deductions. The bipartisan Budget Act of 2015 overhauled partnership audit rules, making it easier for the Wealth Squad and other divisions to audit these structures.
- Private Foundations: While many high-net-worth taxpayers use private foundations for legitimate charitable causes, these vehicles can also be misused for tax fraud. The Wealth Squad frequently scrutinizes foundations owned by affluent individuals, families, or businesses to ensure that charitable giving meets the relevant reporting requirements.
- Offshore Accounts: The Wealth Squad also investigates high-income individuals or couples who have foreign bank accounts or offshore holdings. Multiple reporting requirements, including FBAR obligations, apply to these accounts. Failing to comply—especially if done willfully—invites heightened enforcement.
In June of 2023, the IRS Large Business and International (LB&I) Division signaled a renewed focus on wealthy taxpayers and sophisticated planning strategies—an endeavor delayed by the pandemic but now moving into a more aggressive phase. If you have substantial income, sophisticated tax planning structures, or undisclosed foreign accounts, you may be in the crosshairs. Seek support and guidance from our Dual-Licensed Tax Lawyers & CPAs by calling the Tax Law Offices of David W. Klasing at (888) 904-4096 or clicking here to schedule a reduced rate initial consultation.
Overview of the New IRS Compliance Efforts
While the Wealth Squad itself has existed since 2010, the IRS unveiled additional specialized units in 2023 to target high-income individuals and complex pass-through entities. Part of a broader shift within the IRS, these groups integrate newly hired employees—many of whom have specialized skills in forensic accounting, international tax compliance, and data analytics—to improve enforcement. This approach aims to reduce the “no-change” audit rate, refine case selection, and ensure wealthy taxpayers meet their legal obligations.
- Focus on Pass-Through Entities: Large partnerships and S corporations pass their income directly to owners, who are taxed at individual rates. For years, these structures have posed challenges to IRS enforcement, particularly when they involve multiple layers or foreign components.
- Advanced Technology: Improved algorithms, artificial intelligence, and other data analytics tools allow the IRS to detect underreported income, identify emerging tax evasion trends, and reduce random or ineffective audits.
- Collaborative Enforcement: The IRS emphasizes cooperation across different units—such as the Small Business/Self-Employed Division and the National Treasury Employees Union—to streamline investigations and develop staff expertise in complex tax issues.
IRS “Wealth Squad” Enforcement Priorities
- High-Income Individuals: The Wealth Squad typically targets taxpayers in the top income brackets. These individuals often have multiple income streams, large deductions, and sophisticated legal arrangements that can mask unreported earnings.
- Pass-Through Entities and Partnerships: With the Bipartisan Budget Act of 2015 simplifying partnership audit procedures, it is now easier for the Wealth Squad to audit and investigate pass-through structures. This means you may face heightened scrutiny if your partnership returns are deemed suspicious.
- Private Foundations: Foundations under a wealthy individual’s control can invite scrutiny if the IRS suspects misuse of charitable deductions or diversion of assets. Proper legal and accounting guidance is critical to avert potential infractions.
- Offshore Accounts: The IRS is especially vigilant when high earners maintain foreign bank accounts without meeting the reporting requirements. If you fail to disclose your offshore holdings, you risk stiff civil tax penalties—and if the clandestine IRS-CID gets involved, life-altering criminal tax charges.
- Imminent New Examinations: The IRS has announced that a series of delayed investigations and audits targeting hundreds of high-net-worth taxpayers are set to begin or have already started. Future audit rounds are likely to expand beyond these initial groups.
How the IRS Detects Tax Evasion
The IRS uses multiple strategies to uncover suspected tax evasion, particularly in wealthy demographics where the potential revenue loss is considerable:
- Financial Data Analysis: Advanced algorithms and data mining flag anomalies in income and expense patterns.
- Third-Party Reporting: Employers, banks, and brokers file W-2s, 1099s, and other forms that the IRS cross-references against taxpayer returns.
- Whistleblower Program: The IRS rewards informants who provide credible data on underreporting or fraud.
- Data Sharing and Cooperation: Domestic and international agreements allow the IRS to trace offshore assets and identify unreported income.
- Audits and Examinations: Red flags, such as abnormally large deductions or suspicious pass-through structures, can trigger a full-scale audit.
- Artificial Intelligence (AI): AI-driven case selection pinpoints returns with higher fraud risk, reducing random or ineffective audits.
- Whistleblower Hotline: Tips from anonymous sources may prompt further IRS inquiry.
- Data Matching: The IRS compares data from multiple sources, such as bank records and previous returns, to find inconsistencies.
- Public Records and Open Source Intelligence: Social media posts, court documents, and other publicly available information help the IRS identify undisclosed income or assets.
Contact The Tax Law Offices of David W. Klasing If You are Worried About the IRS Targeting High-Income Taxpayers
At the Tax Law Offices of David W. Klasing, we specialize in high-risk civil and criminal federal tax controversies involving high-income individuals, pass-through entities, large corporations, and complex international tax issues. With an A+ rating from the Better Business Bureau and a flawless 10.0 from AVVO, our long track record in resolving intricate tax disputes illustrates our commitment to protecting your wealth, rights, and freedom.
When facing a potential audit or criminal tax investigation by the Wealth Squad—or any other IRS department—our team will:
- Assess Your Records: We thoroughly review your returns, financial statements, and any relevant business structures for potential issues.
- Build a Defense Strategy: We challenge unwarranted IRS requests, mitigate penalties, and, if necessary, guide you through voluntary disclosure.
- Negotiate or Litigate: Should the IRS pursue enforcement action, we are prepared to vigorously defend you, leveraging both tax law and financial expertise.
- Minimize Legal Exposure: By addressing red flags proactively, we reduce the likelihood of indictment or catastrophic penalties.
Note: As long as a taxpayer that has willfully committed tax crimes (potentially including non-filed returns coupled with affirmative evasion of payment) self-reports the tax fraud (including a pattern of non-filed returns) through a domestic or offshore voluntary disclosure before the IRS has started an audit or criminal tax investigation/prosecution, the taxpayer can ordinarily be successfully brought back into tax compliance and receive a nearly guaranteed pass on criminal tax prosecution and simultaneously often receive a break on the civil penalties that would otherwise apply.
It is imperative that you hire an experienced and reputable criminal tax defense attorney to take you through the voluntary disclosure process. Only an Attorney has the Attorney-Client Privilege and Work Product Privileges that will prevent the very professional that you hire from potentially being forced to become a witness against you, especially where they prepared the returns that need to be amended in a subsequent criminal tax audit, investigation or prosecution.
Moreover, only an Attorney can enter you into a voluntary disclosure without engaging in the unauthorized practice of law (a crime in itself). Only an Attorney trained in Criminal Tax Defense fully understands the risks and rewards involved in voluntary disclosures and how to protect you if you do not qualify for voluntary disclosure.
As uniquely qualified and extensively experienced criminal tax defense tax attorneys, Kovel CPAs, and EAs, our firm provides a one-stop-shop for efficiently achieving optimal and predictable results that simultaneously protect your liberty and your net worth. See our Testimonials to see what our clients have to say about us!
Whether you are already under audit by the Wealth Squad or another high-income-focused IRS division or you suspect you could be next, it would be wise to act as soon as possible. Rapid intervention often leads to more favorable outcomes, such as entering a voluntary disclosure program before formal enforcement commences. Secure a reduced-rate initial consultation with our dual-licensed tax attorneys and CPAs online here or call the Tax Law Offices of David W. Klasing at (888) 310-3543.
