TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Wednesday, April 11, 2012

Few Millionaires Audited by IRS Global High Wealth Group

TRAC-IRSThe Transactional Records Access Clearinghouse at Syracuse University yesterday released Few Millionaires Audited by IRS Global High Wealth Group:

Despite considerable IRS fanfare in late 2009 and early 2010, a special government effort claiming to target "global high wealth" individuals completed audits on only 36 of these super high income returns in the nearly two and a half years since the program was announced. ...

While the overall achievements of various components of the special project are scanty, it is true that the records indicate they have turned up an additional $47,729,198 in taxes that IRS agents said were owed.

Table 1. Global High Wealth Audits of Taxpayers Reporting $1 Million or More
  FY 2011 FY 2012 Cumulative
Additional Taxes Recommended $20,140,136 $27,589,062 $47,729,198
Total Number of Audits 18 18 36
with change 14 10 24
with no change 4 8 12
percent no change 22% 44% 33%

However, Table 1 further shows that the agency closed a remarkably large proportion of these GHW examinations as "no change" audits. A "no change" audit is one where the auditors have determined that no additional taxes were owed. For the full twenty-nine months since this new unit was set up, the agency said that in fully one-third of these high-end audits no additional taxes were warranted. And, looking at a more recent period — the first five months of FY 2012 — the "no change" rate was somewhat higher, with 44 percent of such audits being given a pass.

While returns without problems might be expected to close more quickly, considering the complicated tax affairs of global high wealth individuals, the fact that IRS found no issues in the reporting of their tax affairs seems remarkable.

Whether judged by the limited number of audits of "global high wealth individuals" or by the limited resources assigned, this program has not lived up to the fanfare with which it was announced. The IRS Commissioner may need to speak with less hype and more honesty about the sufficiency of agency resources to ensure that high wealth individuals are receiving adequate audit attention. Clearly the program has not yet achieved what the Commissioner promised when it was created: the delivery of a "game-changing strategy" for the IRS that will give the agency "a unified look at the entire complex web of business entities controlled by a high wealth individual."

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I would be curious to know how much the IRS spent on this project to return an extra $47 million in direct taxes, and if there was a higher return in taxes in general from this income level.

Posted by: Thomas | Apr 11, 2012 5:31:57 AM

Did the super-awesome SWAT team remember to stop by Warren Buffet's house?

I know he's Barack's BFF, but Berkshire-Hathaway owes over a billion dollars in unpaid back taxes. I would call that "low hanging fruit".

Posted by: Jim in DC | Apr 11, 2012 5:35:02 AM

And how much of those "reccommended taxes" survive legal challenge by people who can iafford lawyers and probably used accountanrs and lawyers to file in the first place?

Posted by: jhn1 | Apr 11, 2012 5:41:42 AM

Sorry for the typos above, the tablet I used there is more awkward.

What I was trying to point out is the differences between "recommended taxes", confiscated "taxes", and net taxes retained after legal battles.

This administration is pretty bad about using language to mislead, obscure, and flat out lie to the nomenklatura )sp?).

The "recommended taxes" as a phrase seems like a much less definitive phrase than the context it is being used in.

P.S. the CAPTCHA is a pain from a tablet, but spambots could pretend so I guess if it is needed, it is needed everywhere.

Posted by: jhn1 | Apr 11, 2012 8:35:01 AM