Global high-wealth audit update.

• Author: Goldstein, Benson S.

Global High-Wealth Audit Update

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While the IRS audit rare for individual returns of persons earning less than $200,000 has hovered at about 1% over the past several years, 12% of individual taxpayers with incomes of $1 million or more were audited in fiscal year 2011--up from 6% in 2009. Unfortunately, these statistics do not really help CPAs and other tax professionals gauge how many individuals are under examination by the IRS's Global High Wealth Industry group (GHWIG), one of six industry groups within the IRS Large Business and International (LB&I) Division. The IRS created the GHWIG in fall 2009.

According to IRS statistics gathered by the Transactional Records Access Clearinghouse (TRAC), the GHWIG audited only 36 returns of high-wealth individuals in its first 2 1/2 years of operation (TRAC, "Few Millionaires Audited by IRS Global High Wealth Group" (April 10, 2012)). At a February 2012 American Bar Association meeting, IRS LB&I seniorlevel counsel James Fee pointed out that the GHWIG is handling dozens of "enterprise examinations" (see Coder, "Global High-Wealth Audits Growing, Subject to LB&I Procedures," 2012 TNT 34-14 (Feb. 21, 2012)). Another participant in the meeting, Thomas Collins, territory manager (global high wealth) for LB&I, said that if one takes into account all related returns, the number of returns is in the hundreds. To provide some context to these numbers, it is important to understand that LB&I handles well in excess of 40,000 examinations every year.

In describing his expectations for GHWIG in a Dec. 10, 2009, 'speech, IRS Commissioner Douglas Shulman stated:

many high-wealth individuals make use of sophisticated financial, business, and investment arrangements with complicated legal structures and tax consequences. Many of these arrangements are entirely above board. Others mask aggressive tax strategies. And there are other tax...