IRS Wealth Tax Squad – Update

The IRS released audit stats on their audits of high-wealth taxpayers (over $10 income or assets) by their recently formed special IRS tax unit, The Wealth Squad. For Tax year 2015, 450 IRS Wealth Squad audits were initiated.

These IRS audits are expensive, and time consuming starting with an expansive IRS document request, which will be disclosure of not just the individual’s income and related assets & investments but the tax returns of entities they control (more than 50% ownership).

The IRS audits are also intensive and require meticulous tax records. At the outset, the Taxpayer should view what evidentiary exclusions to notice as a reason for non-response to question(s) or document requests.

Objections may include: attorney-client privilege, documents not in taxpayer possession, taxpayer does not “control” the entity (by either voting power or equity ownership i.e. less than 50%).

IRS Tax Audit Rates: Tax Year 2016

In 2016, the IRS audited .7% of individual tax returns (less than 1%), which is the lowest audit rate since 2003 (1 of every 143 tax returns). Only 29% of the audits were conducted in the field (71% by correspondence i.e. mail).

The IRS confirmed that the biggest factor that triggered audits were income levels:

1) Income over $10m had an 18.8 % audit rate (nearly 1 in 5)

2) Income over $5m had a 10.46% audit rate (more than 1 in 10)

3) Income over $1m had 4.6% audit rate (almost 1 in 20)

4) Income over $500k was 2.06% (more than 1 in 50)

5) Income over $200k had an audit rate of 1.01% (1 of 100)

Additional IRS tax audit triggers included:

1) Self-Employment Income: Schedule C/Self-Employment Income audit rate was 2.2% more than 3x non-business tax returns;

2) Unreported Income: Undeclared W-2/ 1099 income trigger audits since the IRS receives notices

3) Math errors from paper tax returns (electronic software tax returns do not have these risks)

Comments are closed.