The Wall Street Journal has an interesting/scary article on the new Global High Wealth Industry Group, a supergroup of auditors that was put together last year to audit the estates of high net worth individuals. The members of the team come from the creme of the crop of the IRS’s corporate auditors.
According to the article, the IRS’s new protocol for these individuals is to request that voluminous, hard-to-obtain documentation be produced on very short order (which isn’t suprising given the auditors’ corporate backgrounds).
I’m afraid this isn’t the worst of it for high net worth individuals. I’ve been speaking and writing a bit on the new estate tax law, and one point that I bring out in my presentations is the significant decrease in the overall number of estate tax returns that will be filed. The number decreased from about 108,000 in 2001, when the estate tax exemption was $1 million, to under 35,000 in 2008, when the exemption was $1 million.
With the estate tax exemption now set at $5 million, we can expect far fewer estate tax returns to be filed. This will leave the estate tax auditors with some time on their hands. We can expect an extremely high audit rate for estate tax returns in the near future.
So high net worth individuals will be getting hit at both ends. During their lifetime, they are hit by a group of superauditors that with corporate-style document requests and turnaround times; at death, their estate tax returns will be closely scrutinized for any unjustified estate tax savings. It seems the rich have entered the era of awful audits.