Will artificial intelligence (AI) take over society? That seems unlikely. But we will see AI play an expanded role in tax operations. The Internal Revenue Service (IRS) recently announced that it plans to use AI to help refine its auditing process. The agency noted some specifics, such as an increased focus on reportings involving hedge funds and large corporations.
Why the focus on corporations and hedge funds?
Representatives for the IRS note that audits in these sectors had decreased in recent years. The move also aligns with IRS Commissioner Danny Werfel’s calls to make sure the wealthy are accountable for their full tax obligations. He further explains that the federal agency will closely review tools the “wealthy use to shield their income” from tax agencies.
Two common examples of these tools: corporations and hedge funds.
Are hedge funds legal?
Generally, yes. Hedge funds allow investors to pool capital and use it to make investments, often in securities. Hedge funds often use risky investment strategies, but this can translate to significant financial reward. They also qualify for various tax savings, including lower tax rates. Only accredited investors can invest in these financial instruments because hedge funds are not subject to the regulations that help protect average investors. As such, critics often scrutinize them for use by the wealthy to manipulate their tax obligations.
Legal use is fine, but misuse or manipulation can transform an otherwise legal financial tool into an instrument to aid criminal activity including potential allegations of tax fraud.
How can use of a hedge fund rise to allegations of tax fraud?
In ways similar to any other financial tool. Illegal use of hedge funds could include a failure to properly report as required by applicable tax laws or attempts to hide the funds in offshore accounts.
Those who are the subject of an investigation or facing allegations of misuse are wise to take the matter seriously. If the feds can establish that you knowingly violated the law, they could push for more than just financial penalties. They could push for imprisonment. The attorneys at Goldburd McCone are familiar with these types of cases. They can review your situation and discuss possible defense strategies.