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Every few years, it seems, the IRS announces a renewed effort to focus on high-net-worth (HNW) individuals and various financial entities connected to them. 2020 is one of those years, it seems, with the announcement from representatives associated with the Large Business and International (LBI) Division that certain HNW individuals should expect audits through the late summer and going into early fall. Officially, the title of the Wealth Squad is the “Global High Wealth Industry Group” of the LBI. Throughout this blog, we will be referring to this group of examiners, simply, as the Wealth Squad.
What are HNW Individuals?
In this context, HNW individuals are generally considered to be U.S. persons with a seven- or eight-figure income, though there is no set criteria. HNW individuals who are of particular interest to the Wealth Squad often have trusts, business partnerships, and other entities that allow pass-through taxation. Essentially, taxpayers who already face a heightened risk of being audited by the IRS should be on alert from the Wealth Squad.
What Will the Wealth Squad Focus On?
Perhaps the most important consideration for U.S. taxpayers is that the Wealth Squad takes a 30,000-foot view of the entities in its crosshairs; in the Internal Revenue Manual, it describes the squad’s mission as taking a “holistic approach” to obtain the “complete financial picture” of HNW enterprises. While a typical audit might focus on a limited scope of alleged wrongdoing, the Wealth Squad will typically leave no stone unturned in its investigative scope.
Therefore, the initial Information Document Request (IDR) by the Wealth Squad will ask for a significant amount of information. If you have received an IDR from the Wealth Squad, some things you might need to produce include:
- Documentation of debts and liabilities owed to any entity, domestic or foreign
- Identification of every offshore asset
- Documents related to any wealth transfers to family members or charities
- Tax returns for the current and previous years (especially those already under audit)
Should You Prepare for an Audit?
If you think your income or net worth would qualify you as a HNW individual in the eyes of the IRS, it is worth your while to take a few proactive steps to get ahead of any Wealth Squad audit (especially if you are associated with any pass-through entities mentioned above). Gathering all pertinent documents and information, in addition to communicating with other individuals associated with your business enterprises, is a good first step. If you do not already have a comprehensive understanding of your income streams, now is a good time to start learning.
Beyond that, an effective tax law firm like Weisberg Kainen Mark can communicate with the Wealth Squad (or any other IRS representatives) to ensure that your rights are protected. If, ultimately, the audit results in criminal charges, we are prepared to give you aggressive and thorough representation. Call us at 305-374-5544 to discuss your options today.
Weisberg Kainen Mark, PL
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