Wealthy Targets

Last year, the IRS started a Global High Wealth Industry Unit comprised of the Agency’s most sophisticated auditors. The audit rate on the wealthy is likely to climb higher than the already increasing rates. Barron’s reveals some triggers that might invite an audit from this new Wealth Industry Unit.

1. Property Transfers: The gift-tax exemption used to be $1 million, so anyone who gave away property valued at more than $1 million and didn’t file a gift-tax return might be at risk for an audit.

2. Certain Investment Losses: Owners of Subchapter S corporations making false claims of investment losses will put the auditors on alert.

3. Home-loan interest deductions: The IRS looks for big deductions for interest on mortgages and home-equity loans

4. Foreign Income: The IRS is cracking down on unreported foreign income. They are demanding from banks and investment firms the names of U.S. clients with foreign accounts.

5. Big Spenders: The IRS is cross-checking the incomes that taxpayers report with their credit-card records in hopes of catching dishonest filers of Schedule C.

See Karen Hube, How the IRS Is Probing the Rich, Barron’s, Sept. 19, 2011.

Special thanks to Joel Dobris (Professor of Law, UC Davis School of Law) for bringing this article to my attention.