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IRS Amps Up Enforcement on the Wealthy

The IRS isn’t playing around; neither should your clients.

Look to legal and ethical ways to reduce tax burdens.

In the article, Randy discusses how the IRS has intensified efforts to combat tax fraud and non-compliance, specifically focusing on high-net-worth individuals and entities involved in partnerships, complex corporate structures, pass-through entities, and digital assets. Recognizing the potential for tax evasion at the top of the socio-economic ladder, the IRS has strengthened its High Wealth group, establishing a dedicated division and tripling its size to scrutinize partnerships and LLCs.

The Global High-Wealth Group, outlined in the Internal Revenue Manual, strategically identifies key cases involving individuals with controlling interests and significant compliance risks, expanding its focus to encompass interests in various entities. With an $80 billion funding boost from the Inflation Reduction Act, the IRS is under pressure to enhance collection revenue and is committing to hiring 20,000 new staff, investing $12 billion in technology upgrades. Leveraging AI and analytics solutions, the IRS aims to detect patterns associated with tax evasion.

Concerns about advisors playing fast and loose with tax rules have prompted the IRS to issue warnings against cutting corners, particularly in the high-net-worth sector. Misuse of LLCs, such as transferring interests to children or inappropriate dealings with trusts, will face increased scrutiny as the IRS seeks to eliminate hiding behind complexity alone. The focus extends to pass-through entities, with a new unit in the Large Business & International division dedicated to examining large or complex entities, and examinations of both large and mid-sized partnerships with assets over $10 million. Additionally, high-net-worth taxpayers with foreign bank accounts face heightened scrutiny under the Bank Secrecy Act, with penalties for non-compliance ranging from thousands to potentially $100,000 or 50% of the account balance.

As part of a comprehensive enforcement strategy, the IRS is targeting cryptocurrencies and digital assets, estimating a 75% non-compliance rate. The agency plans to tag more digital asset cases for compliance review in the coming year, reflecting a commitment to staying ahead of emerging trends in financial transactions and technologies.


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