Updates and guidance on key IRS practice developments.

• Author: Williams, Uzell T. Freeman

Procedure & Administration IRS Wealth Squad

Included in the IRS's mission statement is its role "to help the large majority of compliant taxpayers with the tax law, while ensuring that the minority who are unwilling to comply pay their fair share." IRS Commissioner Charles Rettig has made this "fair share" goal one of his top priorities and expressed to Congress the need to increase the IRS's budget so that it can actively enforce this measure. In fact, in an August 2021 letter to Sen. Elizabeth Warren, D-Mass., Rettig noted that for every 1% improvement in voluntary compliance, annual revenue could be expected to increase by approximately $30 billion per year. Just as staggering, an April 2021 press release by Treasury quoted a recent study that found that the top 1% of taxpayers failed to report 20% of their income and failed to pay nearly $175 billion in taxes owed annually.

To help tackle this problem, the IRS created what is colloquially known as the IRS Wealth Squad. Formally called the Global High Wealth Industry Group, the Wealth Squad is largely made up of highly skilled auditors and forensic accountants. It is housed in the Large Business and International (LB&I) Division of the IRS, more particularly, under the Pass-Through Entities (PTE) Practice Area. When appropriate, personnel from other business operating divisions within the IRS are brought in to offer assistance on a case.

The Wealth Squad targets both high-net-worth nonfilers and high-net-worth filers who have implemented sophisticated and complex structures or abusive tax transactions. Many times, the taxpayers under audit have foreign financial assets or bank accounts. For purposes of the Wealth Squad, a typical audit would cover business and financial enterprises controlled by individuals with assets or earnings in the tens of millions of dollars.

Origins

The Global High Wealth Industry Group is not a new program in the IRS; in fact, it was formed in 2009. The Internal Revenue Manual (IRM) added Section 4.52.1, Global High Wealth Program Processes and Procedures, in 2013 and updated it in 2019. The IRM explains that this group "was formed to take a holistic approach in addressing the high wealth taxpayer population; to look at the complete financial picture of high wealth individuals and the enterprises they control" (IRM [section]4.52.1.1.1(1)).

The goal of the program is "[t]o ensure GHW uses its limited resources to identify and examine high wealth taxpayers with the highest compliance risk in a consistent and efficient manner" (IRM [section]4.52.1.1(5)). As an aside, the Small Business/Self-Employed (SB/SE) Division started a similar, but more scaled-down, program in 2010 called High Income High Wealth to target taxpayers with incomes over $200,000. The Global High Wealth Program has received more publicity in recent years, due to increased congressional oversight, as well as Treasury Inspector General for Tax Administration (TIGTA) reports criticizing the IRS's underperformance in this area.

What has changed in recent years is that the scope of the Wealth Squad seems to be focusing more on high-net-worth nonfilers, while, historically, the focus appeared to be on auditing filed returns of high-net-worth individuals. The Wealth Squad's case inventory can come from many sources. These include referrals from other IRS groups, whistleblower claims received by the IRS Whistleblower Office, campaigns in which a taxpayer is identified as having a particular issue that the IRS identifies as having a high rate of occurrence in this population, and the discriminant function (DIF) scoring method. In DIF scoring, computers select returns for examination on the basis of their potential for...