In a major address in Washington, D.C. in December, IRS Commissioner Douglas Shulman described the agency’s priorities for 2010 and beyond. As expected, the IRS chief promised that the agency would crack down on tax evasion, especially by wealthy Americans. Shulman also indicated that the IRS may explore joint audits with other tax authorities.
High wealth individuals The IRS has created a Global High Wealth Industry Group. Teams of IRS experts will comb returns of individuals with tens of millions of dollars of assets or income to uncover aggressive tax strategies. The Global High Wealth Industry Group will also look at, among other issues, businesses controlled by high wealth individuals to better assess the risk that such arrangements may pose to tax compliance, Shulman said. Shulman did not give any precise criteria that the U.S. Global High Wealth Industry Group will use to identify taxpayers but noted that their returns are easy to identify. “High wealth individuals are not your typical Form 1040 filers with a W-2, some 1099 income, and maybe a Schedule C enclosed with their return. Their tax picture is much more complicated and nuanced,” Shulman said. Other countries have also created similar initiatives. “Tax agencies around the world, including those in Japan, Germany, the UK, Canada and Australia, have also formed high wealth groups,” Shulman said.
Offshore accounts Shulman also praised the outcome of the IRS’s recent voluntary offshore compliance initiative. More than 14,000 taxpayers requested to participate in the initiative, which offered a reduced penalty framework in exchange for full disclosure of unreported offshore accounts. The IRS is just starting to review all the disclosures and the process will take some time. “The IRS will be mining the voluntary disclosures for information to identify financial institutions, advisors, and others who promoted or otherwise facilitated U.S. persons hiding assets and income offshore and attempted to shirk their tax responsibilities at home,” Shulman said. Shulman cautioned taxpayers not to become complacent after the conclusion of the offshore initiative. “A ‘hide-in-the- sand’ approach to reporting offshore accounts and income has become a much riskier calculus for U.S. taxpayers holding assets anywhere around the world,” Shulman said. The IRS has a long history of cooperating with tax authorities in other countries. The U.S. has negotiated tax treaties with many countries, which provide for the exchange of information. Traditionally, international cooperation has stopped short of joint audits. Shulman said that joint audits may be conducted in the future. “We are working on a protocol to conduct joint audits with some of our treaty partners,” Shulman said.
Transfer pricing Finally, Shulman said that the IRS is also establishing a Transfer Pricing Practice within its Large and Mid-Size Business operating division to administer transfer pricing issues. According to Shulman, the group will be composed of transfer pricing experts who will identify emerging issues and trends in transfer pricing and provide consistent outcomes in transfer pricing cases.