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Raising Taxes Without Raising The Tax Rate

by | Jun 2, 2010 | Articles

Our government has gone from the ridiculous to the sublime in its mad attempt to reduce the debt!  The easy method would be for the country to try a combination of raising taxes and/or reducing spending.  However no, theIRS, in a bid to curry favor with the executive and legislative branches has come up with a novel strategy. The IRS is contemplating auditing wealthy Americans. The audit is related to how someone earned their wealth.  I can see the questions now.  An agent driving a beat up old car comes to your home and starts estimating the value of your home and looks at you as if you are the clone of Bernie Madoff (the Ponzi scheme king.)  “Did you really earn that money you have in those brokerage accounts?  You know, less than 9% of the public has assets in excess of $100,000 according to the census bureau.  You do not look that much better to have accumulated so much!”  (The IRS receives a 1099 reporting so they potentially know your net worth) When you answer that your wealth is accumulated through savings over the decades, I can see the next question!  “Then where is the proof?!”  The agent expects you to scurry through decades of records that the federal government under a different administration had encouraged you to destroy.  When you don’t produce the documents, shredded documents, the agent starts calculating how much money you owe the government requesting you to sell your home, mortgage your teeth, and threatens you with jail time if you don’t quickly cough up the millions of dollars that you must have earned and not reported to have accumulated your nest egg.

 

Although this scenario seems like something out of a Woody Allen movie, the IRS recently announced that they are seriously contemplating this type of audit! With a deficit growing at a trillion or more a year, the ever evolving IRS money grabbing strategies may again shift.  The new “pot of gold” that the IRS believes it can seize with some changes in its rules and procedures is related to uncovering the trillions of potential IRSrevenue, hidden or not reported in previous years by individuals.  Currently, the thought is to only go after the top one half of one percent of Americans, you know, those with a net-worth of tens of millions of dollars.

 

The current administration believes that years of reduced audits has assisted many in evading paying US taxes so that now if you are wealthy enough, say someone like Warren Buffet or Bill Gates, the wealth generation must have been done illicitly.  And those innocent wealthy individuals won’t mind spending thousands on experts who can assist them to defend them in keeping their assets.  This may even create a whole new industry: protecting you from the government grabbing your assets.  The government believes that in recent times a skill has been mastered by many individuals through the use of various ‘sophisticated’ vehicles – unreported foreign bank accounts, various off-shore multi-tiered partnerships and trust agreements, private funds and foundations. For a tax auditor, analyzing the income section of a 1040 tax return (wages, dividends, interest, capital gains, etc.) is simply not sufficient anymore in order to create a clear understanding of how an individual or a business organization has obtained its income.  The complexity of tax reporting and tax planning witnessed nowadays has created a pronounced urgency for the IRSto update and modernize its own auditing strategy used for certain wealthy taxpayers.  Therefore, the IRS, is spearheading a new effort, the Global High Wealth Exam Group, to revisit and scrutinize past tax returns of individuals with such high net-worth.

The Global High Wealth Exam Group will be comprised of ‘wealth squads’ of highly trained and experienced agents who have the skills to delve into the examination of not just the returns themselves but also all the relationships involved in the preparation of the return – additional returns, organizations related to the return, preparers of the returns.  Each of these squads will have its specialist focused on one particular area of tax evasion, i.e. financial securities, exempt organizations, etc.

What does this all mean to you?  It means that if theIRS’s new team finds a few criminals  with all the agents and so few turn out to be honest taxpayers in the tens of millions dollar group, then it won’t be long before the government widens its new strategy to every person with incomes over $250,000.  Remember, the alternative minimum (AMD) tax was originally designed to force a group of less than 200 taxpayers to pay taxes.  Now the AMD adds taxes to millions of people and according to the IRS, over 52% of Americans pay no taxes!  It sounds like “Big Brother” will soon come to America!

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