Public statements and budget allocations indicate that the Internal Revenue Service continues to allocate enforcement resources toward complex tax returns, including those involving high-income and high-asset individuals. While precise audit selection metrics are not publicly disclosed, advisors to ultra-high-net-worth (UHNW) taxpayers should assume sustained scrutiny of complex reporting structures in 2026.
This article provides a high-level overview of publicly discussed enforcement themes and outlines compliance considerations relevant to family offices, private investors, and fiduciary advisors.
Recent IRS updates and funding efforts point to a long-term push to modernize enforcement, especially in the Large Business & International (LB&I) division. Some of the publicly mentioned initiatives are:
The IRS uses several screening methods, such as data analytics and statistical sampling. Since the audit selection process is not fully transparent, no single factor can be identified as the deciding factor in an audit.
Although examination results depend on each situation, professionals often see extra attention in these areas:
If international disclosures are incomplete or inconsistent, the examination process can become more complicated.
IRS initiatives have publicly referenced examinations of large partnerships, including:
Sophisticated estate planning tools, such as grantor trusts, dynasty trusts, and GRATs, may be reviewed when valuation discounts or transfers within a family are involved. Defending your valuation methods is a common focus during examinations.
Determining material participation and handling passive activity losses often requires a lot of detailed information. Examinations here usually focus on how well you can support your claims, not just the structure of your activities.
For S corporations and similar pass-through entities, issues may arise regarding:
As before, the results depend on the facts of each case and the quality of your documentation.
The IRS employs multiple selection mechanisms, which may include:
It would be inaccurate to characterize audit selection as exclusively targeted or exclusively random. The process likely incorporates both programmatic initiatives and statistical sampling components.
Because high-net-worth tax reporting is complex, taking proactive governance steps can help make examinations go more smoothly.
Advisors may consider structured pre-filing reviews of:
These reviews do not remove the risk of an audit, but they can make your position easier to defend.
Examination results often depend on having up-to-date documentation. Key areas to focus on include:
In circumstances where mistakes are found, you may be able to take corrective action under certain procedures. However, whether you qualify, the possible penalties, and the results depend on several factors, such as timing, how serious the issue is, intent, and IRS judgment. There is no guarantee that penalties will be reduced.
Historically published IRS data has shown variation in audit rates across income categories, with higher reported income brackets often reflecting higher relative examination rates. However, no specific income level should be viewed as a definitive threshold for audit selection. The likelihood of examination is influenced by multiple qualitative and quantitative factors.
Public statements and funding trends suggest that enforcement modernization is a long-term change, not just a short-term effort. UHNW taxpayers and their advisors should consider strong documentation and governance as the new standard for compliance.
Broad Compliance Disclosure
This material is provided for informational and educational purposes only. It is not intended as legal, tax, accounting, or investment advice, nor should it be construed as a recommendation regarding any specific strategy or transaction.
Tax enforcement practices, examination selection methodologies, and penalty determinations are not fully transparent and are subject to change. Any discussion of potential audit outcomes, penalty mitigation, or enforcement focus areas is based on publicly available information and practitioner observations, which may not reflect individual circumstances.
Readers should consult qualified legal and tax professionals regarding their specific facts and obligations. Nothing herein should be interpreted as guaranteeing any regulatory outcome, audit result, or penalty treatment.