An Internal Revenue Service (IRS) audit is a formal investigation of a taxpayer’s financial information. These can be performed on both individuals and businesses alike. During an audit, IRS agents will carefully review pertinent financial transactions to determine the accuracy of a particular return.
As of 2023, the IRS has announced a new initiative to perform a greater number of “enhanced audits” on wealthy individuals. Specifically, the agency is targeting those who earn over $1 million annually and those with tax debts exceeding $250,000. This new initiative is supported by a recent funding boost and the expansion of compliance programs that focus on investigating large partnerships.
If you need to resolve a tax-related legal issue, get help from our experienced Dual-Licensed Tax Lawyers & CPAs by calling the Tax Law Offices of David W. Klasing at (800) 681-1295 or click here to schedule a reduced rate initial consultation online.
Enhanced IRS Audits Target Wealthier Taxpayers
After a recent funding boost bolstered their audit capabilities, the IRS has announced a new initiative targeting taxpayers with high incomes and large tax debts. This initiative is intended to promote tax compliance, especially among the wealthy.
Who is Being Targeted?
Specifically, the IRS’ enhanced audits are aimed at taxpayers with incomes over $1 million and taxpayers with debts greater than $250,000. The IRS has reiterated that this initiative is not meant to burden working-class people.
Expansion of the Large Partnership Compliance Program
Compliance programs are set forth by tax authorities like the IRS to help ensure that taxpayers fulfill their obligations. As part of its new initiative, the IRS has announced the expansion of the Large Partnership Compliance program. This program focuses on examining large partnerships with assets of at least $10 billion each. It will receive a significant staffing increase that may allow the program to combat tax fraud more effectively. Appropriate cases where fraud is detected or merely suspected will be forwarded to the IRS criminal investigation division whose mission is to criminally prosecute those committing tax crimes for the deterrent effect.
Motivations
The IRS targets wealthy taxpayers for multiple reasons.
First, audits of wealthy people will often yield higher returns on investment compared to audits of working-class citizens. There are often multiple people who will spend hours working on any particular audit. These people want to see a significant reward for the hours they put in.
Furthermore, wealthy taxpayers are often involved in more complex financial endeavors that create opportunities for tax evasion. By auditing the wealthy, the IRS believes they are more likely to uncover complicated tax fraud schemes.
In many cases, wealthy individuals will neglect their tax obligations because of simple mistakes. Our Dual-Licensed Tax Lawyers & CPAs can help you remedy these mistakes and ensure that they are not construed as intentional attempts at tax evasion. We will work diligently to protect your interests and defend against / avoid accusations of tax crimes.
Why Are People Audited by the IRS?
No one wants to see an audit letter from the IRS in their mailbox. Such a letter can strike fear into the heart of any taxpayer. While some audits are random, many are triggered by certain signals of misconduct.
Random Audits
Random audits can help the IRS gather data and potentially improve its audit selection methods. These random audits target taxpayers by chance as part of a routine selection process.
Errors on Tax Returns
Tax returns that contain errors or inconsistencies are likely to be flagged for IRS audits. Some examples of common errors include missing information and discrepancies between reported income and information reported by third parties like financial institutions. Also, returns that report abnormally high income for their applicable industries may be flagged.
Whistleblower Tips
Furthermore, some audits may be performed after the IRS receives tips from whistleblowers. Whistleblowers report suspected tax fraud and other illegal activities to the government. For example, a corporation’s disgruntled employee may report suspected tax evasion schemes to the IRS. Similarly, a whistleblower tip may come from a former business partner.
High-Income Individuals
As previously mentioned, some individuals and businesses are targeted for IRS audits merely because they are wealthy. High-income earners may have more opportunities to engage in tax evasion schemes. Furthermore, audits of these taxpayers are more likely to result in the recovery of a large tax debt.
Past Audit History
Lastly, some taxpayers are audited because of their past audit history. Those who have had prior issues with the IRS may be more likely to be investigated again. Moreover, the penalties for repeated non-compliance can be especially severe.
Potential Consequences of Tax Evasion
Cheating on your taxes can get you in serious trouble. There are multiple potential consequences that you may face.
First, you can face criminal charges for tax evasion. If found guilty, then you may face significant fines and other penalties. If the charges levied against you are especially serious, then you may even face imprisonment. Typically, prison terms are ordinarily assessed in cases where defendants cause at least $30,000 tax loss which equates to one year in jail under the federal sentencing guidelines, are repeat offenders, or are engaged in other criminal activities.
Also, you may have your assets seized. Tax authorities have the power to seize property from taxpayers to satisfy outstanding tax debts. Some common examples of property that may be seized include vehicles, real estate, and bank accounts.
Finally, you may face significant reputational damage in the wake of a tax evasion charge. This reputational damage may affect your ability to maintain social relationships, secure housing, and stay employed or cost you your professional licensing if your profession has a moral character requirement.
How Does the IRS Audit Process Work?
The IRS audit process begins when the IRS selects a tax return for examination. The taxpayer then receives a notification letter that outlines the details of the audit and what records need to be provided.
During the audit, the IRS reviews the taxpayer’s financial information to ensure that their returns are accurate. Once the investigation is complete, the IRS will tell you what they found. Their findings could result in no changes, adjustments to your tax return, or the assessment of penalties.
Contact Our Lawyers for Help with Your Tax Problems
If you have failed to file a tax return for one or more years or have taken a position on a tax return that could not be supported upon an IRS or state tax authority audit, eggshell audit, reverse eggshell audit, or criminal tax investigation, it is in your best interest to contact an experienced tax defense attorney to determine your best route back into federal or state tax compliance without facing criminal prosecution.
Note: As long as a taxpayer that has willfully committed tax crimes (potentially including non-filed foreign information returns coupled with affirmative evasion of U.S. income tax on offshore income) 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 being 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 a voluntary disclosure.
As uniquely qualified and extensively experienced Criminal Tax Defense Tax Attorneys, Kovel CPAs and EAs, our firm provides a one stop shop to efficiently achieve the 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!
We Are Here for You
Regardless of your business or estate needs, the professionals at the Tax Law Offices of David W. Klasing are here for you. We are open for business and our team will help ensure that your business is too. Contact the Law Offices of David W. Klasing today to discuss your business with one of our professionals.
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