In a significant step toward tax fairness, the IRS has unveiled a comprehensive initiative aimed at enhancing tax compliance and accountability. Leveraging the provisions of the Inflation Reduction Act (IRA) and informed by a thorough review of enforcement strategies, this historic effort underscores the IRS’s commitment to restoring integrity within the taxation system.
This initiative, bolstered by the IRA funding, is marked by a strategic shift in focus, directing heightened scrutiny toward high-income earners, partnerships, large corporations and promoters who exploit the nation’s tax laws. Addressing a decade-long decline in audit rates for these segments, the IRS will employ cutting-edge technology, including Artificial Intelligence (AI), to bolster its compliance teams. This technological advancement will empower the IRS to detect tax evasion more effectively, identify emerging compliance threats and refine case selection tools. Crucially, this will alleviate taxpayers from needless “no-change” audits.
To ensure fairness, the IRS has committed to maintaining audit rates for individuals earning less than $400,000 annually. Additionally, new safeguards will be implemented for those claiming the Earned Income Tax Credit (EITC), a vital support for workers with modest incomes. The IRS recognizes the importance of safeguarding these taxpayers from unscrupulous tax preparers seeking to exploit these essential tax credits. IRS Commissioner Danny Werfel emphasized, “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. The years of underfunding that predated the Inflation Reduction Act led to the lowest audit rate of wealthy filers in our history. I am committed to reversing this trend, making sure that new funding will mean more effective compliance efforts on the wealthy, while middle- and low-income filers will continue to see no change in historically low pre-IRA audit rates for years to come.”
Priority Areas for Increased Compliance
Key elements of this initiative include prioritizing high-income cases, intensifying efforts on taxpayers with total positive income exceeding $1 million and substantial tax debts. The IRS will also expand its Large Partnership Compliance (LPC) program, utilizing AI to target the most complex partnership returns. Additionally, a focus on discrepancies in balance sheets involving large partnerships will be addressed promptly, enhancing compliance in this area.
In tandem, the IRS is addressing pressing issues such as digital asset compliance, Foreign Bank Account Report (FBAR) violations among high-income taxpayers and schemes involving labor brokers. These measures are aimed at ensuring a level playing field, safeguarding vulnerable workers and improving compliance across the board.
Furthermore, the IRS is committed to audit fairness, protecting taxpayers from scams and enhancing awareness about emerging fraud tactics. As part of the ongoing Security Summit initiative, efforts to protect taxpayer data and prevent identity theft will continue, underscoring the IRS’s dedication to the security of taxpayer information.
This comprehensive approach reflects the IRS’s unwavering dedication to upholding tax fairness, promoting compliance and safeguarding the integrity of the nation’s tax system. As more details about these initiatives unfold in the coming weeks and months, Doeren Mayhew’s tax advisors will continue to keep you updated on changes impacting you and your business. If you have questions about the new initiative, contact us today.