IRS Announces Significant Compliance Project Looking at Private Foundations

Around the time I left the IRS Chief Counsel's Office in 2011, the IRS was engaged in a project to target high net worth families by looking at all aspects of their wealth. It lasted a little while and then fizzled out a few years later without much to show for itself. It seems the IRS is taking another cut at this issue. It recently announced that it will be conducting audits of over 1,000 private foundations connected to of course high net worth individuals.

Interestingly they are placing the audit effort in the hands of its Large Business and International division rather than in its Tax Exempt Government Entities division. 

From the article: "On June 18, at the New York University Tax Controversy Forum, LB&I Division Commissioner Douglas O’Donnell announced that as soon as the IRS reopens on July 15, the IRS will open several hundred new audits involving high-income individuals, and letters will go out through September. The audits will focus on high-income individuals who have a connection with at least one pass-through entity such as a partnership or S-Corporation, or a connection with a private foundation. The IRS is using data analytics and cooperation across divisions to make these audits as effective as possible. The announcement calls to mind the IRS “Wealth Squad,” a group of examiners focused on conducting audits of high income earners, but this time they will be coordinating across departments.

And speaking of private foundations, the IRS is working to increase those audits on their own as well. IRS Tax-Exempt and Government Entities Division commissioner Tamera Ripperda has identified over 1,000 cases of private foundations that are connected to high income or high net worth individuals. The IRS is particularly interested in auditing whether those private foundations have engaged in prohibited “self-dealing,” such as making loans to a disqualified person."

Philip Hackney