“Government’s view of the economy could be summed up in a few short phrases: if it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.”
Ronald Reagan
Seeking any way out of the $14 trillion national debt and the nearly $2 trillion Obama 2011 budget deficit, desperate IRS tax collectors are searching high and low for more revenue. As Reagan aptly stated, “If it moves, tax it.”
The wealthy are always an IRS target. Now even more so. The top 1% of U.S. taxpayers pays more income tax than the bottom 90% combinedbecause this is where the IRS sees the greatest potential to collect unpaid tax dollars.
And if IRS press releases are to be believed (and they aren’t), many of the top 5% of income earners are tax evading crooks hiding their untaxed booty offshore.
Are you at the top of the income scale? If so, be warned: The IRS is cracking down on wealthy Americans - particularly those with offshore assets.
Do You Have a Target On Your Back?
Our “friendly” IRS Commissioner, Douglas Shulman, has painted a special target on the wealthy and their offshore financial activity.
Doug’s the front man for the Global High Wealth Industry Group (GHWIG), an IRS enforcement unit created in late 2009 to target the very wealthy. This wealth squad, Shulman claims, is a part of a “game-changing strategy” to help the tax agency investigate partnerships, offshore trusts and other complex techniques rich folks use to stash cash offshore and hide income.
And he wasn’t kidding...
The IRS Targets Wealthy in Audit Sweep
Results from the 2010 IRS Data Book show audit rates on rich taxpayers nearly doubled last year...
In 2010, the IRS audited more than one in every hundred tax returns filed. Audit rates increased across every category of taxpayers with income above $500,000. If you made more than $10 million last year, your chances of being audited jumped an alarming 73.4%!
In some aspects these figures make sense... you audit the people with the money. But when the number of wealthy individuals being audited increases this noticeably, the IRS assumes that wealthy people are criminals hiding their money.
The IRS suspects that the sheer number of taxpayers with unreported income - particularly in offshore accounts - is so large that it recently rolled out its latest offshore voluntary disclosure initiative.
It’s all part of the IRS commissioner’s plan 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 responsibility at home.”
What to Do if a Tax Collector Comes Knocking
If the tax collector comes knocking at your door, be prepared to provide details on everything from assets transferred to children or relatives... hedge-fund or private-equity investments... your spouse’s financial involvement... even the magazines you subscribe to.
Complying with such IRS requests can cost at least $10,000 in accounting fees, excluding legal fees, according to a leading accountant. And one important point: never deal directly with the IRS yourself. For maximum protection have your lawyer do that.
Here’s what the IRS wants to know in an audit. If you get hit with an IRS audit, under penalty of law you would be asked to turn over (among other things):
- six years of tax returns, tax prep work papers, tax opinions
- fees paid to tax advice providers, their names and addresses
- all income sources in detail
- all assets and liabilities, including all capital ownership of 20% or more
- a list of all assets transferred as part of estate planning to trusts,family limited partnerships, etc.
- six years of financial statements, net worth
- a list of all charitable donations
- copies of brokerage account records,
- a list of all investments of any kind and the institution where held, hedge funds, REITs, etc.
Notice that the IRS questionnaire has multiple questions concerning offshore financial activity of all kinds. They demand lists of all foreign investments, foreign bank accounts and past Foreign Bank and Financial Accounts filed. They also demand copies of all disclosures already filed with the IRS covering offshore or cross-border transactions or accounts.
And if you do not need to make any disclosures, you must provide an affirmative statement to that effect, stating why no disclosures were required.
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