high-net-worth individuals Archives

Weekly IRS Roundup July 8 – July 12, 2024

by Kevin Spencer, Evan Walters and Sama Kaseer | Jul 17, 2024 | IRS Guidance, Tax Reform

Check out our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of July 8, 2024 – July 12, 2024.

July 8, 2024: The IRS released Internal Revenue Bulletin 2024-28, which includes, among other things:

Announcement 2024-28, which revokes the Internal Revenue Code (Code) 501(c)(3) determination for specified organizations and stipulates that contributions made to said organizations by individual donors are no longer deductible under Code § 170(b)(1)(A).

July 9, 2024: The IRS warned tax professionals about new and evolving scams targeting business and taxpayer information where identity thieves pose as new clients, use phishing emails and employ elaborate schemes involving calls and texts.

July 10, 2024: The IRS issued general guidelines for the registration process for the Code § 45Z Clean Fuel Production Credit, as outlined in Notice 2024-29. These guidelines cover the application process and how claim procedures will operate when the clean fuel producer is a disregarded entity.

July 11, 2024: The IRS announced it has collected more than $1 billion in past-due taxes from high-net-worth individuals and will continue to monitor activities involving large corporations and partnerships and aircraft use.

July 11, 2024: The IRS warned car dealers and sellers about evolving phishing and smishing scams involving fraudulent attempts to trick recipients into clicking suspicious links, providing personal information or downloading malware. Dealerships are advised to remain vigilant and avoid unsolicited messages or links in emails and texts.

July 12, 2024: The IRS released its weekly list of written determinations (e.g., Private Letter Rulings, Technical Advice Memorandums and Chief Counsel Advice).

IRS Announces New Audit Initiative Focused on Jet Airplane Usage

by Kevin Spencer and Evan Walters | Mar 1, 2024 | IRS Audits

On February 21, 2024, the Internal Revenue Service (IRS) announced a new initiative to audit the use of airplanes by corporations, large partnerships and high-net-worth individuals. While the IRS has always examined plane usage, this new focus aligns with recent IRS messaging that corporations and high-income taxpayers are not paying their “fair share” of tax and have been subject to “historically low audit rates.” The IRS will use some of its Inflation Reduction Act of 2022 funding to step up its enforcement efforts in this area.

Indeed, the IRS has been keeping score and publicly sharing their successes in collecting tax from millionaire taxpayers. We have also previously reported on the IRS’s strengthened enforcement plans thanks to its newfound funding.

The IRS’s airplane usage audit initiative will focus on allocations between business and personal use, which highlights several potential tax issues, including:

Limitations on deductions per Internal Revenue Code Section 274
Limitations on deprecation and recapture under Internal Revenue Code Section 280F
Whether the value of a flight is income to the passenger and/or guests (See Reg. §1.61-21).

Practice Point: If you have an airplane and claimed tax deductions for its use and ownership, you should prepare for an IRS examination. What can you do now? First and foremost, you should maintain meticulous records that fully substantiate the business use of the plane. For example, adding more detail about what the plane was used for, how it was used, and tying its use to a business purpose will be key to winning over an IRS auditor. Second, make sure the maintenance and flight log records are up to date and correct. Also, although not directly related to the recently announced IRS’s audit initiative, do not forget to ensure compliance with Federal Aviation Administration regulations and sales tax, use tax, and federal excise tax considerations, particularly if you decide to reorganize the ownership or organizational structure of an entity that owns an aircraft.

IRS Announces New Compliance Initiatives to Collect More Corporate Tax Using Inflation Reduction Act Funds

by Kevin Spencer, Edward L. Froelich and Shawn O’Brien | Oct 24, 2023 | IRS Audits, IRS Guidance

On October 20, 2023, the Internal Revenue Service (IRS) announced new initiatives “to ensure large corporations pay taxes owed.” These initiatives leverage the substantial additional congressional funding that was given to the IRS thanks to the Inflation Reduction Act of 2022 (IRA). (We previously reported on how IRS enforcement is impacted by IRA funding here.) The announcement explains:

The IRS is working to ensure large corporate and high-income individual filers pay the taxes they owe. Prior to the Inflation Reduction Act, more than a decade of budget cuts prevented the IRS from keeping pace with the increasingly complicated set of tools that the wealthiest taxpayers use to hide their income and evade paying their share. The IRS is now taking swift and aggressive action to close this gap.

The announcement also outlines three new initiatives aimed at collecting tax revenue from large corporations:

1. The large foreign-owned corporations transfer pricing initiative. The IRS will focus its attention on US subsidiaries of foreign companies that distribute goods in the United States. Based on data likely received through the now retired Inbound Distributor Campaign, the IRS believes that some of these foreign companies “report losses or exceedingly low margins year after year through the improper use of transfer pricing to avoid reporting an appropriate amount of U.S. profits.” To jump start its initiative, the IRS will be notifying 150 subsidiaries of large foreign corporations “to reiterate their U.S. tax obligations and incentivize self-correction.” These “soft letters” can be a prelude to an audit.

2. The IRS will expand its Large Corporate Compliance (LCC) program. We previously reported on the LCC program, which focuses on noncompliance by using data analytics to identify large corporate taxpayers for audit. With an increased number of staff as a result of IRA funding, the IRS will commence examination of an additional 60 corporations that were selected using a combination of artificial intelligence and subject matter expertise. Key selection metrics will include factors from the various active compliance campaigns.

3. Cracking down on the abuse of former Internal Revenue Code (IRC) Section 199 domestic production activity deduction. The IRS has been battling taxpayers’ IRC Section 199 deductions since its promulgation. We have reported extensively on this topic over the years. The battle between the IRS and taxpayers has heated up in the wake of the repeal of IRC Section 199, which precipitated taxpayers filing billions of dollars of refund claims. The recent $1.8 billion taxpayer loss in Bats Global Market Holdings, Inc., No. 22-9002 (10th Cir. July 12, 2023), aff’g 158 T.C. No. 5 (2022), has clearly emboldened the IRS to intensify its existing Section 199 audit campaign to address noncompliance and review high-risk claims.

In the announcement, the IRS also reported that it has been pursuing high income, high-wealth individuals who have either not filed their taxes or failed to pay recognized tax debt. The IRS is focused on taxpayers with more [...]

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