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Tax Pain Is Only Starting for the Wealthy

Stocks in this article: MO BAC PFE

The shift in policy makes good on the IRS's recent, but ineffective, attempt to alter audit strategies. Despite IRS claims in a 2008 press release that it was making "strong progress in a number of key enforcement areas," especially for "those with incomes of $1 million or more," Transactional Records Access Clearinghouse (TRAC), a government research organization at Syracuse University, found the audit rate on returns reporting incomes of more than $1 million fell at least 19%.

Last year, the IRS also launched the Global High Wealth Industry Group, an effort targeting those earning at least $10 million a year by looking into the use of offshore holdings and residency, international bank accounts and a variety of domestic tax strategies.

"We will take a unified look at the entire web of business entities controlled by a high-wealth individual," IRS Commissioner Douglas Shulman said at George Washington University's International Tax Conference in December.

"The IRS has historically been tripping over millionaires to get to Grandma's Social Security check," says Richard Boggs, head of Nationwide Tax Relief, a Los Angeles-based company that negotiates on behalf of delinquent taxpayers. "That is all changing. We've always thought that there were much easier ways for the IRS to spend less money and collect a whole lot more."

The IRS is not only going after those with greater income (especially those in the $1 million to $10 million range who have traditionally been avoided by random audits), the agency is also more willing to compromise with the less affluent.

The IRS has increased its collection of revenue from lower-income delinquents through negotiations. This cooperative approach, though successful from a government viewpoint, doesn't offer much solace for those about to be taxed more.

"It is causing a rift where it seems the IRS is reaching out to Main Street while laying a hammer down on Wall Street," Boggs says.

Planning your strategy

High-earners' options for minimizing their tax burden are decreasing.

Certain small-cap stocks, for example, may be an alternative to blue-chip companies that pay dividends. But there is still a capital-gains tax to consider.

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