IRS Intensifies Focus to Ensure Tax Compliance from High-Income Entities

Internal Revenue Service (IRS)

The Internal Revenue Service (IRS) is making significant strides to bring high-income individuals, complicated partnerships, and colossal corporations within the ambit of thorough scrutiny. Bolstered by the support of the Inflation Reduction Act (IRA), the IRS is striving towards overturning the past complacency on tax audits, particularly targeting the wealthiest segment of society and large organizations.

A Renewed Drive Towards Rigorous Enforcement

Central to the IRS’s plan are the following key areas to amplify enforcement:

  • Going After High-Income Individuals: A sustained focus on those earning over $1 million and those with a recognized tax debt exceeding $250,000 has resulted in the collection of $38 million from more than 175 high-income taxpayers so far. Over 900 such cases have amassed a total of $520 million from millionaires.
  • Addressing Partnership Balance Sheet Discrepancies: The IRS has discovered discrepancies on the balance sheets of partnerships having over $10 million in assets, pointing towards potential non-compliance. Up to 480 compliance alerts have been issued to remedy this problem.
  • Using AI to Audit Large Partnerships: The Large Partnership Compliance (LPC) program is strategically leveraging AI to examine the most complicated partnership returns. To date, 76 of the largest partnerships in the nation, each holding over $10 billion in assets, are under examination.
  • Targeting Large Foreign-Owned Corporations: The IRS is escalating its compliance efforts on U.S. subsidiaries of foreign companies that side-step taxes via transfer pricing rules. Over 180 such subsidiaries have received compliance alerts outlining their U.S. tax obligations.
  • Expanding Large Corporate Compliance Program: Noncompliance by large corporate taxpayers is being addressed by using data analytics to single out potential audit candidates. The program is set to include additional audits of 60 major corporate taxpayers.
  • Ensuring Accurate Reporting of SECA Taxes: The IRS is rigorously ensuring wealthy individual partners fulfill their SECA tax obligations. Over 80 such audits have been executed, and a Tax Court opinion clarified that limited partner exemption to SECA does not relate to partners who are merely ‘limited’ in nomenclature.

Why Intensified Enforcement is Crucial

Strengthened enforcement initiatives are critical for several reasons:

  • Narrowing the Tax Gap: The IRS aims to close the tax gap (the difference between taxes owed and taxes paid) by rigorously scrutinizing high-income individuals, complex partnerships, and large corporations. This results in a more fair and equitable taxation system.
  • Boosting Revenue Collection: Collecting taxes from high-income individual and corporate taxpayers enhances the government’s overall revenue. This additional revenue can be utilized to fund crucial public services and programs.
  • Encouraging Tax Compliance: By making the wealthiest taxpayers accountable for their tax obligations, the IRS emphasizes the importance of tax compliance for everyone, ensuring the integrity and fairness of the taxation system.
  • Maintaining a Level Playing Field: Proactively targeting those who evade taxes ensures that all taxpayers are subject to the same rules, irrespective of their income or corporation size, thus preventing unfair advantages.

A Bid To Modernize Technology and Enhance Taxpayer Service

Simultaneously, the IRS is also concentrating on enhancing taxpayer service and updating its technological infrastructure. Key initiatives include:

  • Extended In-Person Service: The IRS is reopening Taxpayer Assistance Centers countrywide, offering more than 8,000 additional hours of in-person assistance compared to the previous filing season. This will greatly assist taxpayers, especially in underserved and rural communities.
  • Improved Online Platforms: The IRS is striving for seamless online interactions. New features include online response to notices, a Processing Status for Tax Forms dashboard, voice bots for refund and amended return inquiries, and enhancements to Individual and Business Tax Accounts.

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