As many taxpayers have learned the hard way, no one is safe from the IRS. Even innocent mistakes can create a tangled web of IRS problems—including penalties, interest, and more penalties.
While there is no income bracket that is safe from IRS scrutiny, in recent years the IRS has begun to focus specifically on “high wealth” individuals. A recent article on Motherjones.com examines this policy shift.
The article uses presidential candidate Mitt Romney as an example, but the focus of this increased IRS scrutiny isn’t just on multi-millionaires and billionaires, it’s on all high-income earners:
“In 2009, IRS Commissioner Doug Shulman announced that the IRS had created a new task force to audit people he called "global high-wealth individuals." These new IRS targets, Shulman explained, have tens of millions of dollars in income and assets and "make use of sophisticated financial, business, and investment arrangements with complicated legal structures and tax consequences." They often have an intricate web of related business entities like S-corporations and other pass-through entities they control, along with various off-shore accounts and business entities.
There aren't that many people in the "global high-wealth individual" group—only about 8,000 taxpayers a year who have more than $10 million in annual income—and Romney is "exactly the kind of taxpayer the program was designed to look at," says Rebecca Wilkins, a lawyer at the Center for Tax Justice who used to work with rich clients as a CPA. It's possible for someone with a lot of income, like a corporate CEO, to have a fairly simple tax return, Wilkins says. But Romney's return from 2010 (the only completed one he's released so far) weighs in at 203 pages; 55 pages are simply devoted to disclosing the existence of a host of foreign transactions in tax havens like the Cayman Islands.”
What does this mean for you? It means that, particularly if you’re a “high income” earner, the IRS is going to devote time and resources to searching your returns for any possible mistakes. And it means that if they find any issues, even innocent mistakes, you can expect to get slammed with fines, penalties, and interest. Be forewarned!
If you would like to learn more, or if you’re already dealing with an IRS dispute and need help resolving it, please get in touch with us today!