IRS Shifting More Attention Onto High Income Earners, Partnerships And Large Corporations Following Passage Of Inflation Reduction Act Funding
Capitalizing on Inflation Reduction Act funding and following a top-to-bottom review of enforcement efforts, the Internal Revenue Service announced the start of a sweeping, historic effort to restore fairness in tax compliance by shifting more attention onto high-income earners, partnerships, large corporations, and promoters abusing the nation’s tax laws.
The effort, building off work following last August’s IRA funding, will center on adding more attention on wealthy, partnerships and other high earners that have seen sharp drops in audit rates for these taxpayer segments during the past decade. The changes will be driven with the help of improved technology as well as Artificial Intelligence that will help IRS compliance teams better detect tax cheating, identify emerging compliance threats, and improve case selection tools to avoid burdening taxpayers with needless “no-change” audits.
The Inflation Reduction Act Funding Increases scrutiny on high-income, partnerships and corporations. The IRS states it will shift attention to wealthy from working class taxpayers; key changes coming to reduce burden on average taxpayers while using artificial intelligence and improved technology to identify sophisticated schemes to avoid taxes.
“This new compliance push makes good on the promise of the Inflation Reduction Act to ensure the IRS holds our wealthiest filers accountable to pay the full amount of what they owe,” said IRS Commissioner Danny Werfel.
Major Expansion In high-Income/High Wealth And Partnership Compliance Work
Prioritization of high-income cases. In the High Wealth, High Balance Due Taxpayer Field Initiative, the IRS will intensify work on taxpayers with total positive income above $1 million that have more than $250,000 in recognized tax debt. Building off earlier successes that collected $38 million from more than 175 high-income earners, the IRS will have dozens of Revenue Officers focusing on these high-end collection cases in FY 2024. The IRS is working to expand this effort, contacting about 1,600 taxpayers in this category that owe hundreds of millions of dollars in taxes.
Expansion Of Pilot Focused On Largest Partnerships Leveraging Artificial Intelligence (AI). The complex structures and tax issues present in large partnerships require a focused approach to best identify the highest risk issues and apply resources accordingly. In 2021, the IRS launched the first stage of its Large Partnership Compliance (LPC) program with examinations of some of the largest and most complex partnership returns in the filing population. The IRS is now expanding the LPC program to additional large partnerships. With the help of AI, the selection of these returns is the result of groundbreaking collaboration among experts in data science and tax enforcement, who have been working side-by-side to apply cutting-edge machine learning technology to identify potential compliance risk in the areas of partnership tax, general income tax and accounting, and international tax in a taxpayer segment that historically has been subject to limited examination coverage. By the end of the month, the IRS will open examinations of 75 of the largest partnerships in the U.S. that represent a cross section of industries including hedge funds, real estate investment partnerships, publicly traded partnerships, large law firms and other industries. On average, these partnerships each have more than $10 billion in assets.
Greater Focus On Partnership Issues Through Compliance Letters. The IRS has identified ongoing discrepancies on balance sheets involving partnerships with over $10 million in assets, which is an indicator of potential non-compliance. Taxpayers filing partnership returns are showing discrepancies in the millions of dollars between end-of-year balances compared to the beginning balances the following year. The number of such discrepancies has been increasing over the years. Many of these taxpayers are not attaching required statements explaining the difference. This effort will focus on high-risk large partnerships to quickly address the balance sheet discrepancy. Prior to the IRA, the IRS did not have the resources needed to follow up and engage with all the large partnerships with such discrepancies. However, the IRS will soon have the resources and plan in place to ramp up this effort. It will begin in early October when the IRS will start mailing around 500 partnerships. Depending on the response, the IRS will add these to the audit stream for additional work.
More scrutiny On FBAR Violations. High-income taxpayers from all segments continue to utilize Foreign Bank accounts to avoid disclosure and related taxes. A U.S. person with a financial interest over a foreign financial account is required to file a Report of Foreign Bank and Financial Accounts (FBAR) if the aggregate value of all foreign financial accounts is more than $10,000 at any time. IRS analysis of multi-year filing patterns has identified hundreds of possible FBAR non-filers with account balances that average over $1.4 million. The IRS plans to audit the most egregious potential non-filer FBAR cases in Fiscal Year 2024.
The IRS and Department of Justice are monitoring millions of Americans’ private transactions, bank accounts and financial information without legal process using an AI-powered system.
IRS AI technology will find commonalities and patterns within taxpayers’ information and that this technology already exists in some aspects of finance.
Per the IRS’s Strategic Operating Plan for fiscal year (FY) 2023 through 2031, expanded enforcement is on the radar for large partnerships and large corporations, with additional focus on the employment tax returns these and other entities file. The IRS said it will improve tools and processes for auditing these returns and “pursue noncompliance through a variety of robust mechanisms, including audits and non-audit contacts.
IRS STRATEGIC OPERATING PLAN
https://www.irs.gov/pub/irs-pdf/p3744.pdf
Ensuring taxpayers file accurate returns and pay the taxes they owe is an important component of this Plan.
Tracking every transaction you are making including guns and ammo, farm equipment, art, vehicles, travel and entertainment, plane purchases, gambling, real estate and more.
In August 2022, Congress enacted the Inflation Reduction Act (IRA), giving the Internal Revenue Service (IRS) a historic opportunity to transform the administration of the tax system and the services provided to taxpayers. The IRA provides our government with approximately $80 billion over the next decade to significantly improve the way they serve the public.
All Democrats voted to pass the Bill and all Republicans voted against the Bill. The Senate voted to pass the 891 BILLION Inflation Reduction Act (H.R. 5376) along party lines (51-50), concluding a marathon session. Vice President Kamala Harris cast the tie-breaking vote to approve the Inflation Reduction Act Bill. It was then sent to President Biden for final signature.
According to Ballotpedia
The Inflation Reduction Act of 2022 was a federal bill signed into law by President Joe Biden (D) on August 16, 2022, addressing climate change, healthcare costs, and tax enforcement.[1] To read a summary of the bill prepared by the Congressional Research Service, click here.
The United States Senate voted 51-50 to pass the bill on August 7, 2022, and the United States House of Representatives voted 220-207 to pass the bill on August 12.[2] Senate Majority Leader Chuck Schumer (D-N.Y.) released legislative text for the bill on July 27.[3]
Features of the bill included:[4][5]
- A $369 billion investment to address energy security and climate change.
- An extension of Affordable Care Act subsidies
- Allowing Medicare to negotiate certain drug prices
- A 15% corporate minimum tax, a 1% stock buyback fee, and enhanced Internal Revenue Service (IRS) enforcement
- An estimated $300 billion deficit reduction from 2022-2031[6][7]
The bill was passed through the budget reconciliation process, which provides a procedural path around the supermajority requirement in the Senate. It was created by the Congressional Budget Act of 1974 to facilitate a quicker process for reviewing and passing certain bills related to spending, revenues, and debt. This process is not subject to the filibuster and only requires a simple majority vote.[8] At the time of the Inflation Reduction Act’s(891 BILLION BILL) passage, the 117th Congress had passed one other reconciliation bill (American Rescue Plan Act of 2021, which was A 1.9 TRILLION BILL) passage and proposed one other reconciliation bill (Build Back Better Act, which was a 3.5 TRILLION BILL) passage.
And do not forget the “ What The Heck Do You Call It Bill…for 1.2 TRILLION passage to prevent a government shutdown and sent money to protect Ukraine, Israel and Taiwan border but not the U.S. border.
This page provides the following information about the bill:
- Summary of the bill: A summary of the bill prepared by the Congressional Research Service:
- Estimated budgetary effects: An overview of the bill’s estimated budgetary effects prepared by the Congressional Budget Office.
- Timeline of congressional action: Key dates and votes relating to the bill’s passage:
- Key roll calls: An overview of how each U.S. representative and senator voted on the bill.
- Vote-a-rama: An overview of the vote-a-rama that took place in relation to this bill.
President Biden proposes another 12.3 BILLION in tax increases for taxpayers:
President Biden Proposes Highest Capital Gains Tax In 100 Years
Is there a Tax Professional out there who knows what the total amount is for all the Bills passed by our Congressional Representatives and President Biden during this administration?
We suggest you register to attend this complimentary webinar on partnerships and S Corps tax planning strategies by leading tax experts on the topic:
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