June 2020

Legal Update: IRS Audit Enforcement Initiative to Target High-Income Households and Private Foundations


High-income earners and private foundations may soon face audits under a new IRS new enforcement initiative. The audits will be headed by the IRS’s Large Business and International (“LB&I”) Division and will focus on high-income earners who did not file tax returns, and high-income households which have either a pass-through entity (such as a partnership or an S-Corporation) or a private foundation.

In March 2020, Treasury Secretary Steven Mnuchin testified in a House Ways and Means Committee hearing that he authorized IRS Commissioner Charles Rettig to increase funding so that the IRS can audit more high-income earners. On June 18, 2020, LB&I Division Commissioner Douglas O’Donnell verified the new enforcement initiative when he announced at a New York University Tax Controversy event that the IRS will open several hundred new audits involving high-income individuals. The audit letters will go out through September 2020.

The IRS will conduct the audits using an array of data analytics and artificial intelligence tools, in addition to cooperation with other divisions of the IRS and government agencies. Regarding private foundations, the IRS is particularly interested in whether the organizations have engaged in prohibited “self-dealing” that may include making loans to disqualified persons. A May 29, 2020 report by the Treasury Inspector General for Tax Administration confirmed that high-income earners who did not file tax returns resulted in an estimated $37 billion of unreported and unpaid federal income tax for years 2011 through 2013.

Sideman & Bancroft LLP offers clients unparalleled experience and expertise in handling both civil and criminal tax-related cases. Our tax attorneys represent taxpayers in all phases of IRS audits and tax controversies.