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potentially underreported income, Rettig & Government Entities (TE/GE) Divi-
It is generally announced that the IRS has prioritized sion and SB/SE. It is safe to assume that
everyone assigned to the case has a role
these cases and that IRS examination
prudent to advise personnel are auditing these taxpayers at to play. No one is there by accident. It
clients to come a rate far higher than any other category also should come as no surprise that the
of individual filers. Moreover, the IRS is
information document requests (IDRs)
into compliance expanding its efforts to recruit and retain issued to the taxpayer will be very
voluntarily, before experienced, sophisticated, and special- thorough and may even be perceived as
the IRS catches up ized examiners to conduct the examina- overly broad. As an example, an item on
the IDR may request a copy of all tax
tions. Technology, including the use of
with them. data analytics and risk assessments, is opinions received that have any bearing
another important area in which efforts to the years under audit. Another request
are being focused. may be for copies of all tax preparation
(IRM §4.52.1.1(5)). As an aside, the Unlike a standard examination/ workpapers, including adjusting entries,
Small Business/Self-Employed (SB/SE) audit of a single type of tax form that closing entries, mappings, etc.
Division started a similar, but more practitioners are accustomed to deal- By the time the IRS contacts the
scaled-down, program in 2010 called ing with, an exam conducted by the taxpayer, it has performed a significant
High Income High Wealth to target Wealth Squad generally includes an amount of due diligence in building the
taxpayers with incomes over $200,000. individual tax return (called the “key case file. During the course of an audit,
The Global High Wealth Program case”), coupled with related income the practitioner may come across two
has received more publicity in recent tax returns in which the taxpayer has a IRS terms/acronyms for the first time:
years, due to increased congressional controlling interest and for which sig- “yK-1” is an interactive link analysis tool
oversight, as well as Treasury Inspec- nificant compliance risk is deemed to developed by the IRS to discover and
tor General for Tax Administration exist, such as interests in partnerships, explore tax entities and their relation-
(TIGTA) reports criticizing the IRS’s trusts, S corporations, C corpora- ships to one another. This is frequently
underperformance in this area. tions, other foreign entities, relation- used in helping the Wealth Squad
What has changed in recent years ships with private foundations, large prepare the case for audit. Another
is that the scope of the Wealth Squad gifts, etc. commonly used term is “LUQ,” which
seems to be focusing more on high- refers to large, unusual, and questionable
net-worth nonfilers, while, historically, Case development items. The Wealth Squad may spend
the focus appeared to be on auditing As a case develops from the early selec- significant time reviewing these items.
filed returns of high-net-worth indi- tion stage and is assigned to an exam- While this holds true for all taxpayers,
viduals. The Wealth Squad’s case in- iner, it is not uncommon for individuals it is extremely important that taxpayers
ventory can come from many sources. outside the Wealth Squad to be assigned who are audited by the Wealth Squad
These include referrals from other IRS to the team. Generally, specialists and have excellent records and substantiation
groups, whistleblower claims received technical advisers, including cross- that clearly document their reportable
by the IRS Whistleblower Office, cam- border and financial products experts, transactions and other material items.
paigns in which a taxpayer is identified engineers, and appraisers, are brought in Just as examinations of high-wealth
as having a particular issue that the to assist with the examination, though taxpayers have their nuances, collections
IRS identifies as having a high rate of many times behind the scenes without from this group of taxpayers may vary
occurrence in this population, and the ever having any contact with the taxpay- in how they are staffed and coordinated.
discriminant function (DIF) scoring er. Depending on the nature of the case, For example, in early 2020, the IRS
method. In DIF scoring, computers IRS Counsel and personnel from the rolled out a special compliance initia-
select returns for examination on the Office of Fraud Enforcement (OFE), tive titled Revenue Officer Compliance
basis of their potential for change, the Office of Promoter Investigations Sweep (ROCS). This initiative involved
based on IRS experience with similar (OPI), and the Criminal Investigation having a team of revenue officers spend
returns (IRS Fact Sheet 2006-10). Division (CID) may be involved. a specified period in particular geo-
Practitioners may expect to see graphic areas with larger concentrations
IRS focus significant crossover, data sharing, and of high-income/high-wealth individual
Citing the complexity involved in the collaboration between LB&I and other taxpayer cases and business cases where
cases, coupled with the amount of IRS divisions, mainly the Tax Exempt payroll taxes were going unpaid. The

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