According to a recent Barron’s article, the IRS’ new Global High Wealth Industry unit is ramping up to recoup some of the $350 billion in taxes that the government estimates is due but not collected every year. The article notes several red flags that may trigger an audit:
Property Transfers
The IRS is scrutinizing state property transfer records to see if corresponding gift returns have been filed. Since gifting property has become more popular as housing values started declining five years ago, this strategy may yield some results for the IRS.
Canceled Mortgages and Loans
The IRS is giving a huge tax bill to many families that lose their homes or walked away from their credit card debt. They are treating the former debt as "income" for tax purposes. This includes "Short Sales" and "Debt Forgiveness".
Investment Losses
The IRS is scrutinizing investment losses claimed by owners of LLCs, Corporations, or Partnerships to ensure that investors who claimed losses were actively involved in the business.
Home loan Interest Deductions
If your home loan deductions exceed $70,000, the IRS will review it.
Foreign Income and Bank Accounts
The IRS is demanding the names of U.S. clients from foreign banks and investment firms. Now that the amnesty program for taxpayers with unreported foreign income has expired, those who did not report may face stiff penalties. The countries and the banks are giving the information away without any resistance.
Big Spending or Cash Purchases
The IRS is cross-referencing taxpayers’ reported income with credit card records in hopes of snagging tax evasion and especially the Schedule C, which reports on business profits and losses. The IRS estimates Schedule C filers report only 57 percent of their income each year, which equates to $68 billion in tax evasion.
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