IRS Focuses on Tax-Avoidance Efforts of Very Wealthy Individuals

The Internal Revenue Service has started a new audit program that will try to stop very rich individuals from using “complex financial arrangements” — including private foundations — to avoid paying taxes.

The new Global High Wealth Industry group “will centralize and focus IRS compliance expertise involving high-wealth individuals and their related entities, which can often have an international component,” Douglas H. Shulman, Commissioner of Internal Revenue, told a Washington conference of the American Institute of Certified Public Accountants.

“For a variety of reasons, including valid business reasons, many high-wealth individuals make use of sophisticated financial, business, and investment arrangements with complicated legal structures and tax consequences,” Mr. Shulman said. “Many of these arrangements are entirely above board; others mask aggressive tax strategies.”

Mr. Shulman said examples of these complex arrangements could include “trusts, real-estate investments, royalty and licensing agreements, revenue-based or equity-sharing arrangements, private foundations, privately held companies,” and partnerships that “require looking at the entire, and often huge, spectrum of transactions and entities.”

A single high-wealth individual “may have actual or beneficial ownership of numerous related entities, sometimes alone and sometimes along with other family members or business associates,” Mr. Shulman said.

Initially, the IRS program will examine individuals with tens of millions of dollars of assets or income, the commissioner said.