A recent article in the New York Times could be good news for high-net-worth clients who worry about being subject to tax audits. After analyzing historical data, the Times found that the audit rate of individual taxpayers has decreased by about two-thirds since 2010. The audit rates for HNW households are also much lower than in the past. According to the article, the lower audit rates have led to less government revenue.
In addition to this news, President Donald Trump’s plans to cut 25% of the IRS’ workforce will inevitably result in fewer audits. These recent developments will undermine President Biden’s attempts to beef up audits on HNW taxpayers, partnerships and corporations when he was in office.
Fewer audits mean that some taxpayers will be more aggressive in their planning. When that occurs, practitioners should remind them that some audits will still occur, penalties could be assessed and a future administration could reinvigorate the IRS with proper funding and permit proper staffing, warns attorney Martin M. Shenkman. Further, practitioners should be cautious about strategies that are too aggressive and evaluate whether they want to be involved as some clients push the envelope very far because of the lower audit risk, he says.