A new initiative at the Internal Revenue Service aimed at cracking down on high-income taxpayers with assets abroad has only managed to audit 13 returns since it was set up a year and a half ago.
Syracuse University’s Transactional Records Access Clearinghouse reported Thursday that it had examined a series of monthly internal IRS reports, obtained through a Freedom of Information Act request. The TRAC report found that the IRS’s Global High Wealth Industry Group, which IRS Commissioner Doug Shulman announced with considerable fanfare in the fall of 2009, has audited only 13 returns during the previous year and a half, as of the end of last month (see IRS Steps Up Enforcement on the Rich). Because a single taxpayer at this level frequently will file different kinds of returns, the number of individuals who so far have been targeted is almost certainly very small, TRAC added.
The IRS group was supposed to focus the IRS’s compliance expertise on “high-wealth individuals and their related entities,” according to Shulman. However, one of the IRS’s internal monthly reports found that the GHWIG was seriously behind in meeting its examination targets for the first half of fiscal year 2011, with only 19 percent of its audit objectives met.
Only 78 agents have been assigned to the new group so far, according to TRAC. In comparison, for the entire Large Business & International Division, there were a total of 5,655 revenue agents at the beginning of fiscal 2011.
The group audited only two tax returns in fiscal year 2010 and 11 in fiscal 2011. In comparison, the entire LB&I Division—which is generally responsible for large businesses with assets of $10 million or more—examined 42,835 returns in fiscal 201, and by the end of last month had audited 29,688 returns during the current fiscal year.
The IRS faulted the TRAC report and said the new unit is making "strong progress."
"TRAC is incorrect in its analysis," said a statement forwarded by an IRS spokesman. "Despite TRAC’s assertions, the Global High Wealth unit is making strong progress. It’s important to keep in mind that these taxpayers have elaborate, complex cases involving multiple tax entities – from a handful to numerous entities, frequently in multiple tax jurisdictions. These are intricate cases that will take time to review. Although a small number of audits have been completed, 57 enterprise cases with numerous related entities are currently being examined, with a substantial number of additional cases under development."
"It’s important to keep in mind that the group has been in existence just more than a year," the IRS added. "Two teams began in late 2009, three more were added last summer and two more last fall. With this level of complexity, it takes time to train new employees and develop new processes. As Commissioner Doug Shulman stated when announcing formation of this group, our first steps will include a small number of examinations of these high wealth individuals that will use this enterprise approach. What we learn from the initial enterprise examinations will help us define the scope of our future work and build compliance tools going forward."
"At the end of the day, it’s clear the IRS has entered a whole new arena of tax administration that was frequently overlooked a few years ago," the IRS added. "The IRS is making important progress in this area, and our efforts will continue moving forward in the months and years ahead."