Advisors express confidence wealthy clients will avoid IRS crackdown
Investment advisors expressed confidence their clients won’t be among those targeted by the IRS in an initiative that cracks down on wealthy tax cheats.
The IRS announced Friday that it would use funding from tax and climate legislation approved last year to increase scrutiny of high-income earners, partnerships, large corporations and promoters who abuse tax laws. Audit rates for taxpayers in those segments have fallen sharply over the past decade, the agency said, while audits for those claiming the Earned Income Tax Credit have remained high.
Money allocated to the IRS by the Inflation Reduction Act will finance the effort to ensure the wealthy pay their fair share of taxes, according to the agency. It said audit rates would not increase for people earning less than $400,000 annually.
“This new compliance push makes good on the promise of the Inflation Reduction Act to ensure the IRS holds our wealthiest filers accountable to pay the full amount of what they owe,” IRS Commissioner Danny Werfel said in a statement. “The years of underfunding that predated the Inflation Reduction Act led to the lowest audit rate of wealthy filers in our history. I am committed to reversing this trend, making sure that new funding will mean more effective compliance efforts on the wealthy, while middle- and low-income filers will continue to see no change in historically low pre-IRA audit rates for years to come.”
The IRS said it will intensify its scrutiny of people who earn more than $1 million annually and have more than $250,000 in recognized tax debt. The agency will build on a previous program that collected $38 million from 175 high earners. In the next fiscal year, it will target 1,600 taxpayers who owe millions in taxes.
Most advisors’ clients likely will be in the clear, said Richard Pon, an investment advisor and CPA in San Francisco.
“I suspect a lot of the high-net-worth individuals are compliant because they have quality advisors who know what the law is and how to follow it correctly,” Pon said.
Malissa Marshall, owner of Soaring Wealth, is confident her clients will avoid the IRS dragnet. In addition to being an advisor, she is designated as an enrolled agent by the IRS and prepares 90 to 110 tax returns for her clients each year.
“I am not worried about my clients becoming targets, since I prepare almost all of their tax returns — or otherwise review them before filing,” she said. “It’s pretty cut-and-dried what we do.”
The IRS said it will utilize artificial intelligence to delve into tax issues surrounding complex partnership structures. By the end of the month, it will open examinations of the largest 75 U.S. partnerships, including hedge funds, real estate investment partnerships, publicly traded partnerships, large law firms and other industries.
Matt Chancey, a tax specialist at Coastal Investment Advisors, is not concerned about the partnership probe.
“There are completely legal ways to participate in private partnerships with tax benefits and those programs and their use is encouraged by the federal government based on economic expansion for communities as a whole,” Chancey wrote in an email. “I do think there are promoters of illegal tax schemes, frauds and Ponzi schemes popping up on a daily basis that are giving the legal and legitimate programs a bad name while also hurting investors that are suckered into them.”
The IRS received $80 billion in the Inflation Reduction Act for its efforts to crack down on wealthy tax dodgers. But that funding was trimmed in the bipartisan agreement earlier this year to raise the debt ceiling. It may be reduced again as Congress works on a federal budget for the next fiscal year.
“I can see this being negotiated again,” Pon said.
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source https://www.investmentnews.com/advisors-express-confidence-wealthy-clients-will-avoid-irs-crackdown-243266
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