The top 2% of income earners may not need to wait until the end of 2012 to pay more taxes. Congress will take up the debate next year to determine if the Bush tax cuts are extended. Many feel the lower rates should not be extended for the top two tax brackets. However, the IRS is concerned the wealthy haven’t been paying their fair share all along. It has been reported that a $300 billion gap exists between what is owed and what the IRS collects. The IRS has developed a strategy to aggressively reduce this gap and collect more of the shortfall.
The IRS created the Global High Wealth Industry Group (GHWIG) in 2009 to focus on audits of the wealthy. Four percent of taxpayers with income between $1 million and $5 million were audited in 2008; 7% were audited last year. The audit rate for taxpayers with income greater than $10 million nearly doubled to 18% in the same period. The GHWIG is looking at aggressive tax strategies to uncover unreported income and improper tax deductions. Situations that raise red flags for the GHWIG are foreign accounts, trust arrangements and off-shore business activities (see IRS on the Prowl).
These audits usually start off with a request for additional documents and information. If the IRS believes additional scrutiny is warranted, a more in-depth list of questions will be produced which will signal the involvement of the GHWIG. You should seek the help of a tax attorney at this point. Many tax disputes are civil matters and can be resolved administratively. However, disagreements over the application of tax law especially concerning foreign accounts can turn into criminal tax investigations. A tax attorney can help you take the steps necessary to minimize the chance of this happening.