IRS Expands Highly Comp Execs Tax Dodge Probe

March 2, 2005 ( - The Internal Revenue Service (IRS) has kicked off a systematic review of the tax returns of well-to-do executives at hundreds of US companies after an initial effort in that area uncovered major tax reporting issues.

The IRS probe is one component of a broader focus on the wealthy including highly compensated executives and entrepreneurs, the Wall Street Journal reported. In the group being examined are also executives of big charities and other nonprofits. A pilot program focusing on two dozen unidentified companies started in 2003.

Allegations of corporate tax-dodging at scandal-plagued Enron Corp. and others prompted the tax agency to start taking a closer look at how companies were handling a range of executive-compensation issues. The Journal said those matters included:

  • stock options
  • deferred compensation
  • golden parachutes
  • fringe benefits.

Because of problems the pilot program exposed, “we’re moving toward a position where we routinely look at compensation of executives when we conduct our audits of corporations,” IRS Commissioner Mark Everson told the Journal. To do that, agents “are going to pull the returns of key executives to determine whether the compensation has been correctly recorded.”

According to the Journal, in addition to recouping lost tax revenue, IRS officials re more concerned about the perception of unfairness created when highly compensated people are able to get away with dodging taxes.

Some well-to-do executives already have been feeling pressure from the tax man. Last week, the IRS announced that it was giving almost 200 executives from 42 corporations a deadline of May 23 to accept the agency’s settlement offer concerning their use of an improper shelter aimed at avoiding tax payments on more than $700 million of income from stock options (See  IRS: Settlement Window for Stock Scam Open until late May ).