The IRS has announced plans to increase audits on high net worthindividuals. This group of taxpayers has been negligent in payingtaxes, racking up a substantial tax bill. According to the notice,the IRS will begin sending audit notices to high net worthindividuals when they return to work on July 15.

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"A recent report issued by the Treasury Inspector General ForTax Administration concluded that high-income non-filers accountedfor about $45.7 billion in tax due,"Jennifer Benda, a partner/shareholder atlaw firm Hall Estill, tells GlobeSt.com. "The IRShas determined that an efficient way to increase enforcement andcollection and reduce the tax gap is to focus on the high-incomenon-filer category.  The report stated that TIGTA wasconcerned that the IRS had identified high-income non-filers andshelved the cases."

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The term "high net worth" is a vague category with no formaldescription. Instead of earnings, the IRS will focus on the taxbill. "There are no formal monetary figures but the TIGTA reportfocuses on tax returns with more than $100,000 of taxdue.  The IRS is also focused on taxpayers with relatedentities, including trusts and private foundations," saysBenda.

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The audits could go back as far as six years for high incomeearners who failed to file a tax return, and back to 2016 for thosethat did. "IRS officials recently stated that hundreds ofhigh-income audits would begin when the IRS begins returning to theoffice in July," says Benda. "For filed returns, the audits wouldlikely cover the 2016 through 2018 tax years. Fornon-filers, the IRS will likely cover the entire non-filing period,or at least six years."

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Real estate holdings could be a flag, particularly fornon-filers. "Any non-filer can expect some attention from the IRSunder this initiative," says Benda. "Any HNW individual with realestate holdings could be captured by this initiative, eitherbecause of the amount of potential tax due—over $100,000—because offlow-through income from related entities, or because ofparticipation in a disfavored transaction, such as conservationeasements or captive insurance arrangements. The IRS is alsofocused on proper reporting of cryptocurrency transactions."

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High net worth individuals who are concerned that this auditcampaign could impact them should reach out to a professional. "Thefailure to file a return is a crime.  If returns have notbeen filed, a HNW individual should consult with a tax attorney todevelop a plan for becoming compliant," says Benda. "For filedreturns, if aggressive tax planning has been used or there has beenpotential underreporting of income, it would be wise to seek anindependent review of your filing positions. Upon that review, atax advisor maybe able to recommend measures to mitigate risk oflarge adjustments and penalties on audit."

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Overall, taxpayers should have and provide documentation tocombat an audit. "For someone with sound returns, preparing foraudit involves making sure you have complete documentation toprovide to the IRS to substantiate the income and expenses reportedon the return," says Benda.

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Kelsi Maree Borland

Kelsi Maree Borland is a freelance journalist and magazine writer based in Los Angeles, California. For more than 5 years, she has extensively reported on the commercial real estate industry, covering major deals across all commercial asset classes, investment strategy and capital markets trends, market commentary, economic trends and new technologies disrupting and revolutionizing the industry. Her work appears daily on GlobeSt.com and regularly in Real Estate Forum Magazine. As a magazine writer, she covers lifestyle and travel trends. Her work has appeared in Angeleno, Los Angeles Magazine, Travel and Leisure and more.