Monthly Archives: April 2012

In a ruling published on Wednesday that cannot be appealed, Switzerland's Federal Administrative Court said the tax office was not allowed to hand over information on a Credit Suisse client to the U.S. Internal Revenue Service because its request was based solely on a suspicion of tax evasion and did not include the bank account holder's name.

As of February 2012, the group has completed 36 audits since its 2009 unveiling, 33 percent of which were “no change audits,” according to new data compiled by TRAC. The research organization released a similar report last year that found two completed audits in fiscal year 2010, and 11 audits in the first half of 2011.

The findings in this latest analysis of the performance of the IRS are largely based upon internal agency reports obtained under a court order by the Transactional Records Access Clearinghouse (TRAC) at Syracuse University.

The findings in this latest analysis of the performance of the IRS are largely based upon internal agency reports obtained under a court order by the Transactional Records Access Clearinghouse (TRAC) at Syracuse University.

While the overall achievements of various components of the special project are scanty, it is true that the records indicate they have turned up an additional $47,729,198 in taxes that IRS agents said were owed (see Table 1).

* Covers 29 months since program began: October 2009-February 2012. No GHW million dollar taxpayer audits reported as completed during FY 2010. Income based on total positive income (TPI).

 However, Table 1 further shows that the agency closed a remarkably large proportion of these GHW examinations as "no change" audits. A "no change" audit is one where the auditors have determined that no additional taxes were owed. For the full twenty-nine months since this new unit was set up, the agency said that in fully one-third of these high-end audits no additional taxes were warranted. And, looking at a more recent period — the first five months of FY 2012 — the "no change" rate was somewhat higher, with 44 percent of such audits being given a pass.
While returns without problems might be expected to close more quickly, considering the complicated tax affairs of global high wealth individuals, the fact that IRS found no issues in the reporting of their tax affairs seems remarkable.

High Wealth Group Fails to Meet Even Modest Targets

Modest Targets. One year ago, in reviewing the IRS's accomplishments for the Global High Wealth group, TRAC reported that: "while it is likely the IRS is planning to expand its audit goals in the future, at least for now they are very skimpy." One year later we can report that the targets IRS set for FY 2012 continue to be modest in the extreme.
Since global high wealth individuals often create separate business entities for their different tax purposes, the primary target for these audits has been so-called "flow-through" tax entities — partnerships and S corporations — controlled by these high wealth individuals. They are called "flow-through" tax entities because any tax liabilities for these businesses flow through and are taxed on the individual's 1040 income tax return.
As shown in Table 2, the target for all of FY 2011 for this elite group of GHW revenue agents was 60 partnership audits and 15 S-corporation audits; for FY 2012 it was 70 partnership audits and 26 S-corporation audits. Even including related returns, this was only a goal of 122 total audits for FY 2011 and 162 for all of FY 2012.

The IRS does not report how many individuals these audits would involve. IRS's coordinated industry case program where inter-related companies were examined together typically reported something on the order of 10-15 returns per case. And recalling that an examination of this kind often must cover more than one year, it would appear that the targets set would involve a relatively small number of taxpayers.

Audits Fall Behind Goals.Last year, however, the GHW unit only completed ten partnership audits and one S-corporation audit, falling far short of its targets. Currently the audit pace is picking up, but the group is still far behind the number the agency had established as its targets for just the first four months of this year (see Table 3). Thus, in the internal report card that IRS refers to as the group's "scorecard," it was in the "red zone" in each of its priority areas, falling far short of its audit objectives.

* As of end of January 2012. Percent calculated also based upon IRS's four-month targets of 22 partnership audits, eight Subchapter-S audits, two large corp audits, and one F-corp audit.

The tax agency's audit group is part of the Large Business and International Division and was created to examine tax compliance by high wealth individuals with complicated returns. These returns are almost corporation like in their level of complexity, IRS Spokesman Terry Lemons told BNA following the report's release. An individual may have multiple returns, multiple flowthrough entities, or international tax components, he said.

Lemons said TRAC's report is misleading, and IRS disagrees with its assessment of the Global High Wealth group. To the casual reader, the report may give the impression that IRS is not doing much in terms of the auditing of high wealth individuals, Lemons said, when in fact the group is but one facet of the agency's compliance initiative.

TRAC's report on the Global High Wealth group is at http://trac.syr.edu/tracirs/newfindings/current/.

IRS's Fiscal Year 2011 Enforcement and Service Results is at http://www.irs.gov/pub/newsroom/fy_2011_enforcement_results_table.pdf.

The TIGTA Annual Audit Plan for 2012 is at http://www.treasury.gov/tigta/auditplans/auditplans_fy2012.pdf.

Mildred Quick Muller created a revocable trust that was amended and restated in December 1998 (“1998 Trust”). Muller signed a Power of Attorney in 2010 naming James A. Neiman, her great nephew, as agent. Plaintiff - JP Morgan - as the Trustee of the 1998 Trust, filed an Order to Show Cause seeking advice and direction from the court as to whether the grantor's Agent under the Power of Attorney may direct the re-titling of the 1998 Trust assets into the name of a new 2010 Trust.

Although the 1998 Trust lacks a specific provision giving the Agent the power to revoke the trust and he is not specifically granted this power in the Power of Attorney, Neiman was nonetheless granted broad powers to take any action that Muller may take and to exercise “full and complete power and discretion” in the same manner as Muller.

In addition, the Power of Attorney provides Neiman with the power to transfer funds into any trusts of which Muller is the beneficiary. Neiman, under the terms of the 1998 Trust and the Power of Attorney, has the power to make Trust distributions such that its corpus is completely exhausted. If the court determined that Neiman could not revoke the 1998 Trust, he would nonetheless have the power to deplete its assets but would simply be barred from closing the account. The court found that this is not a logical result. The court held that Neiman, as Agent under the grantor's Power of Attorney, has the right to revoke the 1998 Trust and transfer its assets as requested.