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Spokane, Washington  Est. May 19, 1883

IRS plans more audits next year

The Wall Street Journal

The IRS, intensifying its crackdown on tax dodgers, plans to increase the number of tax audits it conducts next year.

The agency will focus more of its resources investigating taxpayers with incomes of $100,000 and above. Agents will also examine more returns of high-income taxpayers in search of what they call abusive shelters, or transactions with no real economic purpose other than dodging taxes. The agency will devote particular attention to abusive transactions involving parking money in offshore accounts.

While IRS officials won’t discuss specifics of audit targets, they are expected to focus more on self-employed workers who deal largely in cash. Congress recently raised the IRS budget to $10.68 billion, which includes an increase in money earmarked for enforcement activities.

In an interview, IRS Commissioner Mark W. Everson says the assault on shelters includes more audits, litigation and settlement offers. The aim is to strengthen public confidence in the tax system and slash the “tax gap,” the difference between what the government collects and what it estimates it should collect. An IRS study this year estimated that tax evasion and other forms of noncompliance cost the government more than quarter of a trillion dollars in lost revenue each year.

“Combating abusive shelters remains the centerpiece of our enforcement efforts,” Everson says. “Average Americans don’t want to feel that the big guy gets away with something just because he’s rich.”

The IRS audited about 1.2 million individual income-tax returns in the fiscal year ended Sept. 30, up more than 20 percent from a year earlier. The government also has gone to court against numerous taxpayers involved in what it considers to be abusive shelters. The agency also recently announced plans to hire private debt-collection agencies next year to help recover billions of dollars of tax debts.

For those who may have used a questionable tax strategy, the IRS recently announced a settlement initiative for taxpayers to step up and settle, with reduced penalties. The offer, which expires Jan. 23, involves 21 transactions the IRS considers abusive.

Some wealthy individuals are turning to foreign entities, such as offshore trusts and insurance policies, as part of their tax-planning and asset-protection strategies. Although U.S. citizens generally must report any foreign accounts and entities with the U.S. government each year, going offshore could add extra roadblocks on an audit trail.