The IRS is setting up a special unit that will take a more skeptical look at the various strategies used by the wealthy to reduce their tax burden (see Shulman Has ‘Some Sympathy’ for CPA Concerns). That includes trusts, real estate investments, royalty and licensing agreements, private foundations and flow-through entities of various kinds. The agency is hiring extra agents and specialists for the new unit, including flow-through specialists and international examiners, to scrutinize high-wealth individuals and their related enterprises.
Not only that, but the IRS is also expanding its international enforcement efforts, going after tax evaders and affiliated businesses in Central America, Asia and the Caribbean, while opening new IRS offices in Beijing, Panama City, and Sydney, Australia. Shulman noted that other countries are also creating high-wealth groups, including the United Kingdom, Japan, Germany, Canada and Australia. The IRS will likely be working with those agencies and sharing information with them.
CPAs and their clients should be prepared for the increased scrutiny and enforcement efforts. A major concern for many tax preparers is the regulatory overhaul that Shulman has been working on since June. Shulman plans to send his recommendations by the end of the year to Treasury Secretary Tim Geithner and the White House.
He has been hearing from the AICPA in the public forums the IRS has been holding that CPAs are already subject to stiff Circular 230 requirements (as are enrolled agents and tax attorneys). Shulman said he had some sympathy with CPAs’ concerns about having new testing requirements imposed on them. But testing requirements may be beside the point. CPAs will need to be extra careful about signing off on the kinds of complex tax strategies used by high-income individuals, and having a hand in devising such plans. Otherwise the IRS’s new unit could make them a target as well as their clients.