IRS initiatives could change compliance landscape in 2010.

• Author: Fairbanks, Greg A.

During the latter part of 2009, the IRS announced a number of new compliance initiatives that, when fully implemented, have the potential to dramatically alter the way the IRS deals with certain groups of taxpayers. The programs are important not only in how they will directly affect the targeted taxpayer groups but also in the insight they offer on the priorities of current IRS leadership for 2010 and beyond.

These new compliance programs come on the heels of the IRS's well-publicized voluntary disclosure program aimed at cracking down on offshore abuses. Under this program, approximately 14,700 taxpayers came forward to report their offshore accounts to the IRS. While compliance initiatives such as the voluntary disclosure program for offshore accounts are no doubt important and make splashy headlines, the new and less-publicized programs discussed here could affect certain taxpayers just as drastically.

IRS Launches High-Wealth Task Force and Prepares Audits

On October 26, 2009, IRS Commissioner Douglas Shulman announced the creation of a new specialized industry group to target high-wealth individuals. Surprisingly, this Global High Wealth Industry Group will be housed within the Large and Mid-Size Business (LMSB) Division, and the IRS is planning a number of examinations to test the program. According to Shulman, many other countries already employ specialized task forces to pursue their wealthiest taxpayers.

The idea is to centralize IRS compliance efforts for high-wealth individuals because the IRS has to look at sophisticated financial, business, and investment arrangements with complicated legal structures and tax consequences. The task force will take a unified approach to its audits by focusing on the entire web of business entities controlled by a wealthy individual, including issues involving offshore structures, income sources, and tax residency.

The IRS has ostensibly been targeting high-income taxpayers all along, but Shulman seemed to indicate in his comments that current IRS efforts typically involve identifying single returns for audit based on the usual scoring systems for audit selection. The new program would instead look at everything that may be connected to a single taxpayer, including trusts, private foundations, partnerships, equity-sharing arrangements, royalty and licensing agreements, and privately held and related entities where the taxpayer may have actual or beneficial ownership.

The IRS has already hired...