Smart Money reports that the IRS has created a new team of investigators to examine the financial strategies of wealthy people. What’s more, while the new team is focused on identifying fraud — which to IRS represents a significant revenue-generating opportunity — they’re not doing it by increasing auditing alone. Instead, they’re studying the wealth building and tax strategies devised by CPAs to help their clients minimize taxes.
Who’s affected? Mostly the very wealthy — celebrities, professional athletes and the like. However, anyone wealthy enough to participate in a hedge fund, especially if that fund engages in off-shore operations. Owners of successful businesses could face double scrutiny, since high-earning businesses will prompt extra attention to both the business’s own activities and their owners’ tax reporting. Also, individuals with dual citizenship, or legal resident aliens (green card holders) will face additional screening.
Should wealthy citizens — or even those who aren’t currently subject to this extra IRS attention — be worried about this new IRS initiative? Interesting to consider whether this is just a smart strategy on the part of the IRS during a time when the country can least afford the impact of tax fraud. Unpaid taxes from high-income individuals could contribute significantly to offsetting the budget deficit — more bang for the buck than the IRS gets from auditing the majority of taxpayers. And, presuming that only those who’ve been cheating have anything to worry about, maybe this new approach is fair and potentially beneficial to all who pay their fair share already.
On the other hand, it’s possible that this new approach is wasteful. Would it be less expensive to simply audit a higher percentage of returns?
And is there just something inherently unsettling about the IRS delving deeper into citizens’ financial affairs?