SOURCE: Marks Paneth & Shron LLP

Marks Paneth & Shron LLP

October 27, 2009 12:14 ET

Who's Knocking? In Tough Times, It Could Be the IRS

Tax Authorities Are on an Aggressive Revenue Hunt -- and May Look to Investigate High-Net-Worth Individuals and Others With Complex Finances; Former IRS Special Agent Advises What to Do and What Not to Do When the IRS and the FBI Come Calling

NEW YORK, NY--(Marketwire - October 27, 2009) - For high-net-worth individuals, the knock on the door during dinner may not be a friend, or a neighbor, or a Girl Scout selling cookies. It may be a team of IRS agents -- and they might be backed by local police, state police or even the FBI. Tough economic times have sent U.S. tax authorities on an aggressive revenue drive. In fact, it has been reported that the IRS has set up a new enforcement unit -- the Global High Wealth Industry Group -- to target the very wealthy. They're investigating taxpayers -- especially the wealthy and those with complex finances -- as they search for unpaid and underpaid taxes.

"The economic downturn has put the IRS under pressure to close the revenue gap," said David Gannaway, a former IRS special agent who is now a director in the Litigation and Corporate Financial Advisory Services Group at New York accounting firm Marks Paneth & Shron LLP. "At the same time, wealthy individuals may have gotten more aggressive about their investments as they try to restore lost capital. It's a recipe for intensive enforcement, and that's what we're seeing."

Mr. Gannaway is available for interviews, and can also author a bylined article that discusses:

  • Which taxpayers are most at risk: High-net-worth individuals are on the radar of the IRS and owners of closely-held and family-owned businesses. In addition, S-corporations are of interest because they report (and can under-report) their own income. Wealthy wage-earners with complex investments may also be targeted.

  • Why the pace of enforcement will step up this fall: Enforcement efforts were already running at high volume as authorities sought revenue to close the budget gap. With the end of voluntary disclosure of foreign accounts on October 15, enforcement against undisclosed foreign account holders will now begin in earnest.

  • What taxpayers should do when the IRS knocks: When IRS CID and FBI agents and police officers sweep into a home, it's meant to unnerve the subjects and get them to talk. But that's not always advisable. Individuals are entitled to consult with an attorney before answering questions, but they often don't know this or don't know the ramifications of talking with the agents.

  • What taxpayers should tell their attorney. In a word, everything. The attorney's job is to represent the taxpayer's interests. In practice, that often means negotiating with the IRS. But negotiations will likely not succeed if the attorney doesn't have complete information.

  • Why taxpayers should hire an experienced accountant -- and why he should be someone new. An experienced accountant can play a central role on the defense team. The accountant will concentrate on facts, while the attorney focuses on negotiations and trial preparation. The taxpayer's investigation should mirror the IRS', and an accountant who knows the IRS' priorities and methods is the best person to guide it. Accountants can advise on other steps, such as personal bankruptcy, which is sometimes advisable. But the accountant should not be the person who the taxpayer normally engages. A past relationship with an accountant will not be protected by attorney-client privilege, and if the investigation looks into past activities, the regular accountant will have to disclose them. A legally privileged attorney/accountant relationship where information can be shared confidentially is essential.

"There will be an intensive enforcement environment for some time to come," Mr. Gannaway says. "Individuals and organizations, and their attorneys, need to make sure they are prepared for enforcement actions -- and that they have the right skills at the table."

For more information, to schedule an interview or arrange a bylined article, please contact Adria Greenberg of Sommerfield Communications at (212) 255-8386 or adria@sommerfield.com.

About Marks Paneth & Shron

Marks Paneth & Shron LLP is an accounting firm with nearly 500 people, approximately 70 of whom are partners and principals. The firm provides businesses with a full range of auditing, accounting, tax, bankruptcy and restructuring services as well as litigation and corporate financial advisory services to domestic and international clients. The firm also specializes in providing tax advisory and consulting for high-net-worth individuals and their families, as well as a wide range of services for international, real estate, media, entertainment, nonprofit, professional and financial services and energy clients.

The firm's subsidiary, Tailored Technologies, LLC, provides information technology consulting services. In addition, its membership in JHI, the leading international association for independent business advisers, financial consulting and accounting firms, facilitates service delivery to clients throughout the United States and around the world.

Marks Paneth & Shron LLP, whose origins date back to 1907, is the 32 largest accounting firm in the U.S., and the 15th largest in the New York area. Its headquarters are in Manhattan. Additional offices are in Westchester, Long Island and the Cayman Islands. For more information, please visit www.markspaneth.com.

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