The Internal Revenue Service ("IRS") announced that as soon as it reopens its collection and examination functions on July 15, it will immediately begin the examination of hundreds of high-income individuals and private foundations that are often established by high-income taxpayers through the Global High Wealth Industry Group ("GHW").
The GHW consists of a specialized, experienced group of examiners solely focused on conducting audits of high-income/high-wealth taxpayers and their affiliates. The group was formed to take a holistic approach in addressing the high-wealth taxpayer population and to look at the complete financial picture of high-wealth individuals and the enterprises they control. These enterprises include interests in partnerships, trusts, closely held corporations, private foundations, and estate plans.
In a webcast hosted by the NYU School Of Professional Studies, Commissioner of the IRS Large Business and International ("LB&I") Division Douglas O'Donnell stated that by September 30, he expects "several hundred [GHW exams] will be started." Tamera Ripperda, Commissioner of the IRS Tax-Exempt and Government Entities ("TE/GE") Division, added that in addition to exams on high-wealth individuals, she anticipates an increased rate of audit of private foundations.
This sudden increase in cases comes in light of the recent report issued by the Treasury Inspector General of Tax Administration ("TIGTA"), recommending that the IRS increase its focus on certain high-income taxpayers. The TIGTA report states that over the past few years, a significant portion of actionable global high-wealth tax returns were never audited.
GHW taxpayers should carefully consider how to approach a GHW audit of the affiliated entities, especially when the entities could have multiple owners with varying interests. In most instances, GHW taxpayers may want to consider engaging tax litigators at the start of the examination who can utilize the assistance of the return preparers under a Kovel agreement.