Potential IRS Targets

The IRS is completing a massive reorganization and beginning to concentrate on enforcement again. Although audit rates are likely to remain low, people in the following groups may face an increasing chance of scrutiny:

* Sham trust creators. Emboldened by recent court decisions in its favor and a high conviction rate, the IRS is focusing attention on taxpayers and corporations that are hiding income via complicated trusts, many of which are located overseas. These trusts often use such names as “Pure Equity Trust,” “Unincorporated Business Organization” or “UBO” and “Common Law Trust” and are designed to camouflage income and assets. Sham trusts do not include legitimate estate-planning trusts such as living trusts and so-called A/B trusts.

* Non-filers. The agency continues to improve its ability to match tax returns to records from employers, banks, brokerages and mortgage lenders. Its matching program turns up non-filers as well as those who are underreporting income.

* The already-audited. The state of California shares information with the IRS and vice versa. Once an exam is completed by one agency, you can expect to hear from the other.