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87,000 New IRS Agents
Targeting Businesses To Plunder
What Will They Find When They Come For You?
YES IS YOUR IRS EXAMINATION SAFE HARBOR
YES Ensures Businesses To Protect Entrepreneurs Against IRS Audit Risk
INCREASED AUDIT RISK: DIFFICULT TO OVERESTIMATE, FOOLISH TO IGNORE
Entrepreneurs, their advisers, employees, and suppliers, if left unprotected, must now be prepared to confront unprecedented risks: $80 billion and 87,000 new IRS employees to find trillions of additional taxes.
The primary IRS tactic is to increase tax audit rates of targeted individuals. Business owners top the list.
Increased audit rates of select groups and industries are essential if this enhanced IRS is to achieve its strategic objectives:
closing the tax gap,
making "examples" of some taxpayers to encourage greater tax code compliance in the future, and
collecting trillions in additional taxes from suspected tax cheats and those facilitating tax cheats such as advisers and suppliers.
For example, a yacht broker providing inadequate tax advice to facilitate a sale or secure a yacht for inventory for his charter management activities could likely be at greater risk.
It's generally acknowledged that for many years, the IRS has grown increasingly lax in it's oversight. Especially in it's enforcement and compliance of clearly abusive and fraudulent practices.
So much so that some industries have recently evolved and now flourish largely by promoting, encouraging, accommodating, and even joking how rampant tax abuse and fraud has become just part of the usual and customary business. Just standard operating procedure, the status quo and conventional wisdom.
No doubt there are some intentional bad actors that clearly warrant the new extra IRS attention.
However, most just seem to play fast and loose with the tax code and the truth. Some may just be the victims of bad advice or circumstance. Others may have originally been skeptical but were eventually seduced by the crowd, "Everyone does it this way". "We've done this for years and the IRS never had a problem."
Most of the time it can be difficult to tell - as there is little practical difference.
Regardless, the IRS is changing. All are now at risk from a newly enhanced and aggressive IRS.
But some may have much more to fear.
Aside from the obvious immediate risk of additional taxes, penalties and possible incarceration, many entrepreneurs may ultimately decide the additional IRS scrutiny makes certain business ventures simply not worth the risk and aggravation.
It's one thing that an entrepreneur's unprofitable yacht or jet charter activity is an invitation for an IRS audit, but once started, who knows what else an IRS audit may reveal or if it may spur additional audits of the entrepreneur's other activities.
Additionally, high profile, famous business owners, and industry leaders are likely at increased risk.
Given the IRS objective of greater tax compliance in the future, who better to make a public example? What effect might highly publicized criminal tax cases of high profile entrepreneurs or industry leaders have on tax compliance.
Or perhaps a few publicized criminal tax cases of just average business owners - owners of charter yachts for example- may be just as effective.
Thus, without protection from the increasing risk of additional IRS scrutiny, many entrepreneurs may decide to liquidate the business, leave the industry completely, leading to termination of employees and the loss of income to their vendor relationships.
Consequently, it's not just the business owner and his family that are at risk from the consequences of increased IRS scrutiny, but also all those that depend on these entrepreneurs or that help them in some way: their advisers, brokers, employees, captains, crew, and other service & support industries are now at risk.
THE REPUTATIONAL RISKS TO BROKERS & ADVISORS
The risks to an audited entrepreneur's team of advisers; brokers, CPAs, Captains, etc can't be overstated.
It's just human nature for entrepreneurs being audited by the IRS - facing additional taxes, penalties, and maybe even fraud and incarceration - to attempt to shift the responsibility to others:
"My CPA said it was ok,"
"My broker that sold me the yacht / jet explained to me how to do it,"
"My charter manager told me they have been doing it this way for years without any IRS issues."
Who do you think the IRS wants to talk to next?
The CPA, the broker and the charter manager. For it would probably be a safe bet that these advisers gave the same inadequate tax advice to others that should probably also be audited.
At least three risks to advisors are obvious.
First, depending on the sums involved, number of violations, how long such advisers gave such inadequate tax advice, an adviser or broker could be responsible directly to the IRS - with all that may entail.
Possibly promoting tax fraud immediately comes to mind.
Second, these audited entrepreneurs may want to litigate to recover the damages, taxes, and penalties caused by any inadequate tax advice.
Third, many of these entrepreneurs are in industries that are relatively small, tightly knit, highly competitive, where gossip travels quickly. For example, if the clients of one yacht broker start being audited by the IRS, how long until it becomes known that if you use that broker, you're likely to get audited by the IRS?
Do you think any competing yacht brokers would use it to achieve a competitive advantage?
How long, if ever, do you think it would take such a yacht broker to recover from such reputational damage?
Consequently, it's to every professional's benefit to protect their clients from being audited by the IRS.
LOW HANGING FRUIT
At greatest risk are likely to be affluent entrepreneurs in certain high profile industries- characterized by high risk, highly erratic if any interim profits, but with a potential for long term rewards. Often with high start up costs and exorbitant annual expenses, they provide some element of personal pleasure making them legitimate targets of abuse.
Further increasing the entrepreneur's IRS audit risk is that many of these ventures are in high profile luxury goods and services industries with an element of entertainment, recreation or leisure.
Examples of such industries include yacht charter, jet charter, horse racing & breeding.
If these businesses do not make a substantial net after tax profit 3 out of 5 years or 2 out of 7 for horse breeding, the IRS deems them hobbies and not businesses - denying all deductions but still requiring tax on any income.
Thus the burden then falls upon the entrepreneur / tax payer to prove to the IRS and Tax Court that the primary motive for undertaking the activity was - from the very beginning and in each and every year thereafter - to generate a net profit and not something else, such as a scheme simply to mitigate the cost and annual expense of a hobby or taking fraudulent tax deductions to subsidize a luxury leisure lifestyle.
How many owners of charter yachts make a net after tax profit 3 out of 5 years?
Alternatively, how many owners of charter yachts can persuade the IRS and a Tax Court that their primary purpose of owning the yacht is to earn a net after tax profit?
Not surprisingly, and contrary to what some trying to sell a boat may say, that's usually easier said than done.
Claiming, "This is how everyone has done it for years without any IRS complaints," is not a defense.
YES ENSURES BUSINESSES TO PROTECT ENTREPRENEURS FROM IRS AUDIT RISK
We asked previously, "When the IRS comes looking for you, what will they find?"
A complacent, leisurely, undefended treasure ship ready for the taking, or a highly defended man of war- bristling with defenses, ready for battle? A money losing luxury hobby tax scam or a legitimate business with positive cash flow and net profits.
The IRS may be slow, up until now, it may have taken them a while to show up, but they are not stupid.
IRS agents are rational humans in that they want to expend the minimal resources - their time and reputations- in order to reap the greatest reward - their win / loss record and recovery amounts- for the quickest promotions and personal advancement.
YES protects entrepreneurs from increased IRS audit risk, in part by ensuring their businesses are low value targets.
From the IRS' perspective- a YES ensured business would be a high expenditure of resources and effort - with little if any chance of recovery.
Only the foolish few pick a fight they know they can't win. Especially when there are so many other easier and more rewarding targets to be had with so little effort.
YES ensured business stay off the IRS radar, and are avoided for easier more productive targets.
But we can do even more - protecting entrepreneurs from tax liability from past errors. An IRS audit of an unprofitable business will not just be an audit of one year, but of multiple years. And if they determine the primary motive was not to earn a profit in any year, then any costs, expenses, and deductions are denied under the hobby loss rules for each year a profit motive is absent.
So any IRS audit of an unprofitable business found to be lacking the primary profit motive could likely subject the owner to multiple years of taxes and penalties.
Providing safe harbor from the IRS - not only protects against future risks but against possible historical tax liability too.
YES IS YOUR ENSURED SAFE HARBOR FROM INCREASING IRS AUDIT RISK
At YES, we have numerous ways to protect clients from increased IRS exposure. Too many to detail here.
Obviously not all solutions are appropriate for all clients and circumstances. Some solutions are better for specific industries or certain situations. Regardless, all our proprietary strategies are customized for each individual client.
But perhaps the greatest service we provide is peace of mind. One less worry, makes it all more rewarding.
When YES ensures their business, almost any yacht charter, jet charter and equestrian entrepreneur can have safe harbor and be protected from increased IRS scrutiny of their business and the tax liability one could expect from the IRS reclassifying their activity as a hobby and not a business.
Please contact us for a confidential conversation.
That if your current advisors knew, surely they'd have told you already- wouldn't they?