The Internal Revenue Service (IRS) has announced that they are planning to significantly increase the audit rates of wealthy individuals and complex partnerships. Combined with the IRS’s existing scrutiny of taxpayers with foreign assets and financial accounts, this increased focus has the likelihood to significantly affect international tax clients and underscores the importance of meticulous tax planning and compliance.

Understanding the implications of an expanded audit focus

1. Increased audit rates for high-income individuals and complex partnerships

   The IRS intends to increase audits for individuals with incomes exceeding $10 million and large, complex partnerships with assets over $10 million. For wealthy individuals, the audit rate will increase from 11% to 26% by 2026; for complex partnerships, the audit rate will increase from 0.1% to 1% by 2026.

2. Strategic impact for international clients

   • Preparation for increased scrutiny: Clients with significant foreign financial assets and accounts should be prepared for increased scrutiny of their returns. As such, careful records of all foreign transactions affecting taxable income should be maintained.
   • Enhanced compliance measures: Given the higher risk of audits, compliance measures should be stringent, particularly with respect to the preparation of international information reporting and Reports of Foreign Bank and Financial Accounts (FBARs).
   • Consultation and proactive strategy: Engaging with tax professionals to anticipate potential areas of concern and adjusting tax strategies accordingly will be crucial. Strategic tax planning, including estate planning and international tax strategies, should be reviewed, and possibly restructured, in light of these changes.

Advisory and support services for navigating audit changes

Citrin Cooperman is committed to supporting its clients through these transformative times in United State (U.S.) tax policy. Our services are tailored to ensure compliance and to optimize tax positions in response to the IRS’s new audit focus. This includes:

• Comprehensive audit defense and support: With specialized services in audit defense, we provide professional representation and support throughout the audit process. Our tax team is skilled in negotiating with tax authorities and will work diligently to advocate on your behalf.
• Preemptive tax compliance reviews: Our tax professionals conduct in-depth reviews of filings and financial operations to ensure all potential compliance issues are addressed before they attract IRS attention.
• Strategic tax planning consultation: Our advanced tax planning strategies are designed to respond to the IRS’s increased focus. This includes exploring lawful avenues for tax minimization, such as the appropriate use of tax credits, deductions, and tax treaties that may benefit your situation.
• Ongoing education and regulatory updates: We keep our clients informed of all relevant tax law changes and IRS guidelines that may impact their financial and tax planning strategies.

Staying ahead of the IRS’s new audit focus

The IRS's shift towards more rigorous auditing of wealthy, globally-based individuals and complex partnerships indicates a clear direction for future tax enforcement. Staying ahead of these changes through strategic planning and compliance is more important than ever. Citrin Cooperman is here to provide the insights and support needed to navigate this evolving landscape confidently.

If you have any questions regarding taxation for foreign wealthy individuals or other matters related to international tax, please reach out to the International Tax Services Practice Managing Partner Leon Dutkiewicz at ldutkiewicz@citrincooperman.com or Jonathan Padilla at jpadilla@citrincooperman.com.