Revenooers Comin’ After High Earners!
And the Treasury Inspector General for Tax Administration (TIGTA) doesn’t like the IRS’ “MO”.
In its most recent audit report, last week, TIGTA notes that IRS has taken steps to improve its audit coverage of high-income taxpayers. But it should reevaluate whether the threshold of $200,000 for its High-Income and High-Wealth strategy results in an efficient allocation of audit resources.
Translation: “Doesn’t everybody make $200,000 or more each year?”
TIGTA says that because IRS is devoting more audit resources to these taxpayers, it is important to know at what level of income or wealth taxpayers tend to begin establishing complex financial holdings that are at greater risk for noncompliance with the law.
IRS’ High-Income and High-Wealth strategy devotes nearly 50 percent of its high-income audits to taxpayers earning $200,000 to $399,999, whose tax returns potentially present the least productivity of all high-income taxpayers, says TIGTA.
“The IRS should reevaluate the income level it uses to identify taxpayers for its High-Income and High-Wealth strategy so that it can better allocate audit resources to the most significant audit risks,” says J. Russell George, TIGTA major domo.
The IRS Large Business and International Division (LB&I) established the Global High Wealth (GHW) Industry, which takes a comprehensive approach in auditing high-income taxpayers by extending audits beyond the individual tax return to the entities which these taxpayers control.
But IRS is using resources from three other LB&I industries to assist with auditing GHW cases, though no evaluation has been made regarding the impact of that decision on those other industries. Further – and importantly – IRS cannot quantify its GHW audit performance because of limitations of IRS audit information systems, and GHW has not implemented a quality review process for its audits.
And you can thank Obama for recently eliminating a process (the “file and suspend method” of claiming Social Security benefits) via recent legislation which will nix this strategy used by married folk to maximize their lifetime benefits.
Under this approach, a higher earning spouse would claim benefits at his full retirement age (presently 66) but suspend the benefits until a later date allowing the Social Security credits to continue to grow. The lower earning spouse would then claim benefits based on the higher earning spouse’s earnings record, which would be more than the benefits based on his or her own earnings record. The new rules eliminate this opportunity for claims filed after April 30, 2016.
CONSULT YOUR TAX ADVISOR – This article contains general information about various tax matters. You should consult your CPA regarding the implications to your own particular situation.
Jeff Quinn, the author of this article, is a shareholder in Ashley Quinn, CPAs and Consultants, Ltd., with offices in Incline Village and Reno. He welcomes comments at email@example.com.