Investment Advisors Confident Clients Won’t Be Targeted in 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.
Increased Scrutiny on High-Income Earners
- 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, while audits for those claiming the Earned Income Tax Credit have remained high.
Funding from the Inflation Reduction Act
- Money allocated to the IRS by the Inflation Reduction Act will finance the effort to ensure the wealthy pay their fair share of taxes.
- Audit rates would not increase for people earning less than $400,000 annually.
IRS Commissioner’s Statement
“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.
Targeting Tax Debt and High Earners
- The IRS 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 target 1,600 taxpayers who owe millions in taxes in the next fiscal year.
Advisors’ Confidence in Clients
Most advisors’ clients likely will be in the clear, said Richard Pon, an investment advisor and CPA in San Francisco.
Malissa Marshall, owner of Soaring Wealth, is confident her clients will avoid the IRS dragnet.
Utilizing Artificial Intelligence
The IRS 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.
Concerns about Illegal Tax Schemes
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.
Funding Reduction and Negotiation
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.
