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If you have any questions or concerns, please use the contact information provided in this email as this inbox is not monitored for replies.
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IRS Releases Inflation Reduction Act Strategic Operating Plan: Is an Audit Storm Brewing for High Net-Worth Individuals?
In early April, the IRS released its long-anticipated Inflation Reduction Act Strategic Operating Plan (“IRA Plan”) funded by nearly $80 billion over the next 10 years. The Congressional Budget Office has estimated that this plan will increase tax revenue by more than $180 billion, while the IRS believes it could be much higher.
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The IRA Plan is expected to increase focus and compliance efforts on complex partnership structures, large corporations, and high net-worth individuals, where in recent years it has not had sufficient resources to do so. As a result, audit rates are expected to increase from today’s low levels to much higher levels as the IRA Plan ramps up. Of the approximate $80 billion appropriation, it is expected that $47.6 billion of it will be used for enforcement efforts.
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Notably, the IRA Plan states, “the IRS will increase enforcement activities to help ensure tax compliance of high-income and high-wealth individuals” as it has not had sufficient resources for enforcement in the past to ensure “they are paying the taxes they owe.” As a result, there is a likelihood of increased audits of gift, estate, and personal income tax returns due to the dramatic increase in resources.
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Due to the increased examination of high-income and high-net-worth individuals, one may expect valuations used by these individuals will encounter significantly greater IRS attention going forward. Along those lines it is expected that valuation issues historically targeted by the IRS, such as discounts for lack of marketability and control, tiered discounts, tax-affecting pass-through entities, pre-sale transfers, IRC 2701 and 2036 issues, formula transfers, split-dollar life insurance and conservation easements will be ripe for audit by an expanded IRS.
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In order to increase enforcement, “the first wave of specialists hired and onboarded to increase compliance coverage rates for high-income and high-wealth individuals” will occur in 2023. According to the plan, this hiring wave will focus on the addition of accountants, attorneys, and data scientists with the education and experience to pursue these tax filers. During 2023 and 2024, the IRS will attempt to hire nearly 20,000 new employees, and approximately 7,200 of these employees will be for enforcement.
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In summary, it is anticipated that there could be a meaningful uptick in estate tax, gift tax, and charitable deduction income tax audits for high-income and high-net-worth individuals going forward. As a result, when illiquid assets are involved, taxpayers and their advisors are encouraged to hire top-tier valuation providers that will prepare excellent work products and be at the ready to leverage their extensive experience defending valuations at the examination or appellate level, or in Tax Court, if necessary.
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The information provided in this publication is only general in nature. It has been prepared without taking into account any specific objectives, financial circumstances, or needs. Accordingly, MPI disclaims any and all guarantees, undertakings, and warranties, expressed or implied, and shall not be liable for any loss or damage whatsoever (including human or computer error, negligent or otherwise, or actual, incidental, consequential or any other loss or damage) arising out of or in connection with any use or reliance upon the information or advice contained within this publication. The viewer must accept sole responsibility associated with the use of the material in this publication, irrespective of the purpose for which such use or results are applied. This material should not be viewed as advice or recommendations. This information is not intended to, and should not, form a primary basis for any investment, valuation, or other decisions. MPI is not acting as a fiduciary, an expert, or advisor in any capacity whatsoever in providing the information set forth herein. The information set forth herein may not be relied upon and is not a substitute for competent legal and financial advice. The viewer of this material is cautioned and advised to consult with his or her own legal and financial counsel in evaluating the information provided herein.
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Our thanks to MPI.
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About MPI
MPI (Management Planning Inc.) is a business valuation, litigation support, forensic accounting and M&A advisory firm providing valuations for a variety of tax, financial reporting, litigation and other business applications, as well as corporate advisory services to business owners and their representatives.
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Upcoming Events
- June 1: Chicago Loyola Family Business Center, Chicago, IL
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June 2: PATG event in Minneapolis, MN
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June 13: Presentation in Hilton Head, SC Hosted by Dividend Capital
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June 14 to 16: FAMILY BUSINESS CENTERS Executive Directors ALLIANCE, Wake Forest, NC
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June 29: Pacific FBC, U of Northern Iowa, IA
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Sign-Up For New Podcast: "Voice of Family Business on Capitol Hill" with host Pat Soldano.
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Join our growing family of podcast listeners by clicking on the links below to our new podcast, "The Voice of Family Business on Capitol," where each episode delves into the major issues facing family businesses and family business centers today. Subscribe by clicking on these links, or wherever you get your podcasts.
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We hope you’ve enjoyed this article. While you’re here, we have a small favor to ask…
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As we prepare for what promises to be a pivotal year for America, we’re asking you to consider becoming a supporter.
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The need for fact-based reporting of issues important to multi generational businesses and protecting a lifetime of savings has never been greater. Now more than ever, multi generational businesses and family businesses are under fire. That’s why Policy and Taxation Group is passionately working to increase the awareness of issues important to generationally-owned family businesses built on hard work, while continuing to strengthen our presence on Capitol Hill.
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About Policy and Taxation Group
Policy and Taxation Group is your voice in Washington on economic freedom. We advocate for policies that allow American families to fully enjoy the economic liberties and benefits of a robust free market unique to our nation. For over 25 years, we have been the loudest voice in the nation’s capital on eliminating the death tax. This ill-conceived tax has a destructive impact on families, family businesses, job creation, and the national economy.
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Have questions or would like more information about becoming a Supporter or donating? Please contact John Marino at [email protected].
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