On 5/4/24, the U.S. Department of the Treasury and the IRS outlined the accomplishments achieved in the first year of implementation of the Strategic Operating Plan, a comprehensive roadmap to transform the IRS using Inflation Reduction Act (IRA) resources. Part of the IRS Strategic Operating Plan includes an expanded focus on the High Income High Wealth taxpayers: “Focus expanded enforcement on taxpayers with complex tax filings and high-dollar noncompliance to address the tax gap.” The Tax Gap (the difference between what taxpayers owe and what they pay on time) has been a persistent problem for the U.S. government for decades. IRS compliance efforts are geared towards having the IRS compliance teams better detect tax cheating, identify emerging compliance threats, improve case selection tools, and reduce the tax gap.
The Plan also notes that the IRS has enhanced analytics via Artificial Intelligence; creating more capacity to target noncompliance of High Income High Wealth Taxpayers and corporations with the highest risk of noncompliance. That said, the key message to High Income High Wealth Taxpayers is that they ought to work with experienced tax advisors that can manage an IRS audit or an IRS disagreement or dispute and are able to able to provide effective compliance solutions.
Excerpts from the IRS Strategic Operating Plan Objectives 2024
- Expand enforcement presence through hiring in critical staffing areas such as revenue agents, revenue officers, and tax specialists, including those dedicated to high income earners and large and complex partnerships.
- Stand up dedicated team to focus on structure of new organization to work complex partnerships and pass through entities.
- Expand efforts involving digital assets, including work through the John Doe summons effort and the release of proposed regulations on broker reporting.
- Continue examinations of 76 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.
- Continue to explore alternative interventions including “soft” notices such as compliance alerts sent to large partnerships with balance sheet discrepancies.
- Establish a team and develop workplan to evaluate key enforcement programs for fairness.
- Invest IRA resources into research that can help identify any disparities across dimensions of race, ethnicity, age, gender and geography, and refine our approaches to compliance and enforcement. In 2024 we will deploy two pilot models which aim to both improve audit outcomes and reduce racial disparity.
- Develop data and research approach to inform and continuously refine compliance strategy needed to promote voluntary compliance.
- Establish at least one minimum viable product for advanced case selection of priority taxpayer segment such as High Income High Wealth.
Excerpts from the IRS Strategic Operating Plan Objectives 2025
- Identify and implement strategic options for rapidly increasing enforcement activities, including non-audit activities, to supplement hiring and training activities.
- Pilot refined approaches and treatments for priority taxpayer segments (e.g., large corporations, complex partnerships, High Income High Wealth individuals).
- Continue hiring and upskilling of newly hired workforce.
- High-income non-filers receive tailored, proactive outreach before receiving automated assessments or penalties.
- Apply improved data and analytics practices to design and implement enforcement practice enhancements aimed to improve fairness.
- Develop and implement enhancements to enforcement practices to improve fairness and equity.
- Begin to identify potential high-risk compliance cases using new analytical approaches.
- Expand use of advanced case selection platform to use with additional taxpayer segments.
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