The IRS has just hired hundreds of new auditors for a new “wealth audit” group. Their task is to audit people with more sophisticated structures and multiple companies. Here’s an article: New IRS Group
We work with our clients to create the most efficient structures possible. That means lowest cost, ease of use and tax savings. It’s easy to get lured into creating a complicated series of structures, but unless there is a business purpose behind the structures, the IRS can claim they are sham. That’s what this new IRS division is all about. They’re trained to look for the holes in your strategy. If you set up new companies for tax savings, and you can’t prove any other economic purpose, then you have a sham. If you have misused companies and have common control, you can’t have benefit plans that discriminate. They’re trained to look for that as well. And if you have multiple C Corporations with controlled group status (for corporate ownership), then you have to file a consolidated statement.
The rules for controlled group status are complicated, with different attribution rules required for different situations. The morale of the story? Don’t try this by yourself! And if you have more than one company, make sure your accountant understands what rules apply and when. Run each company like a business and be ready to prove what the business purpose is for each business.
The IRS will be watching.