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The Tax Prophet Newsletter   Issue # 78 October, 2009

REDUCE TAXES!
CHECK OUT THE TAX PROPHET'S Action Guides


In This Issue:
Introduction
Target
IRS Unit
Foreign Offices
CPAs
Conclusion


IRS Targets Super Wealthy

Introduction

Heeding the howls of Congress and the press, IRS will audit the super-wealthy who use a variety of complicated tax-planning ploys to reduce or eliminate their tax bite.

In a shot across the bow, IRS Commissioner Doug Shulman told the American Institute of Certified Public Accountants to watch out: the agency will be pursuing tax preparers who help taxpayers hide income through complex off-shore structures.

Target

IRS recently formed a new global wealth unit, focusing on individuals worth at least $30 million who are sheltering wealth through convoluted business entities and arrangements.

The agency will also target corporations engaging in aggressive tax planning using foreign entities and transactions.


IRS Unit

IRS will take a unified look at the entire web of business entities controlled by rich individuals, including trusts, real estate investments, hedge funds, royalty and licensing agreements, private foundations and flow-through entities (typically partnerships and limited liability companies).

Extra agents and specialists, including flow-through specialists and international examiners, will be hired.


Foreign Offices

IRS is opening new offices in Beijing, Panama City and Sydney to track funds flowing out of Europe and into Asia, and vice-versa.

The recent UBS case, in which Switzerland's largest bank assisted U.S. taxpayers in evading billions in taxes, has provided impetus for the global initiative. Also, IRS will be working in concert with European efforts to crackdown on international tax havens.


CPAs

CPAs were forewarned about increased scrutiny and enforcement efforts. IRS cautioned them to be extra careful when signing off on complex tax strategies or devising such plans; otherwise, the new unit could make them a target as well.


Conclusion

The recent UBS revelations were an eye-opener for IRS and Congress. It is surprising that IRS has not previously employed a unified approach when auditing wealthy taxpayers with multifaceted business structures and foreign transactions.

The lesson: In this era of the global economy, tax authorities need to rethink their traditional approach of examining only a wealthy individual's Form 1040 and not scrutinizing the underlying sources of income shown on the return, especially when foreign entities and transactions are implicated.



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All contents copyright 2009 Robert L. Sommers, attorney-at-law. All rights reserved. This newsletter provides information of a general nature for educational purposes only and is not intended to be legal or tax advice. This information has not been updated to reflect subsequent changes in the law, if any. Your particular facts and circumstances, and changes in the law, must be considered when applying U.S. tax law. You should always consult with a competent tax professional licensed in your state with respect to your particular situation. The Tax Prophet is a registered trademark of Robert L. Sommers.