Wealthy Taxpayers Feeling the Pressure from IRS

The Internal Revenue Service is targeting wealthy executives and entrepreneurs to ferret out would-be tax dodgers.

The IRS has not focused on individual tax returns of the well-to-do for years, the Wall Street Journal reported, but is becoming more aggressive after studying the results of a 2003 pilot program covering 24 big companies, which were not identified.

Because of the tax problems the pilot program exposed, "we're moving toward a position where we routinely look at compensation of executives when we conduct our audits of corporations," IRS Commissioner Mark Everson told the newspaper. To do that, agents "are going to pull the returns of key executives to determine whether the compensation has been correctly recorded."

Everson also said that it's more than just lost tax dollars that the IRS is worried about. A perception of unfairness is created when well-compensated people avoid taxes and get away with it, he said.

Andrew Liazos, a lawyer with Boston-based McDermott Will & Emery, said IRS officials also are concerned that tax-avoidance strategies can reflect on a company's corporate governance and reputation with investors. The IRS is therefore working more closely with the Securities and Exchange Commission and Public Company Accounting Oversight Board.

Some examples of the IRS' recent crackdown:

  • The IRS has given almost 200 executives from 42 corporations a deadline of May 23 to accept the agency's settlement offer relating to an improper tax shelter used to avoid taxes on more than $700 million of income from stock options.

  • The IRS is seeking settlements from high-net-worth investors and entrepreneurs who used aggressively promoted tax shelters to hide big gains.

  • A Washington-area telecommunications executive, Walter Anderson, has been indicted for tax evasion in one of the largest individual criminal tax cases ever. He is accused of owing about $210 million in taxes, which he allegedly avoided by setting up a number of offshore corporations in tax havens like the British Virgin Islands. Federal prosecutors said the offshore corporations hid about $450 million in income.

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