The commentary in A Closer Look: Impacting the Tax Gap by IRS Commissioner Chuck Rettig discusses how the IRS has shifted its examination focus to tax returns that include high income taxpayers, pass-through entities, multinational taxpayers involving international tax issues, large pension plans, private foundations, virtual currencies and Non-filers. The commentary sheds a lot of light with respect to what the IRS focus and enforcement programs that are in place.
IRS Examination Functions for Return-Selection Programs tackle:
- High-income taxpayers through the Discriminate Function (DIF) scoring method, related returns through a partnership examination, through a campaign, the Global High Wealth (GHW) program, offshore compliance work, international individual compliance activity, review of foreign tax credits, or corporate officer compliance checks.
- Virtual currencies including crypto collectibles and non-fungible digital assets, including Non-Fungible Tokens (NFTs)
- Return Preparer non-filers.
- Form 8300 (reporting of cash transactions of $10,000 or more).
IRS Current Enforcement Programs include:
- The Global High Net Worth (GHW) Program: addresses the high-net-worth taxpayer population and looks at the complete financial picture of high-net worth individuals including the entities that are controlled by them. Cases involve individual income tax returns, and related income tax returns where the individual has a controlling interest and significant compliance risk is deemed to exist. Controlling interest includes significant ownership of, or significant influence over, an entity or multiple entities within the enterprise. The enterprise case may include interests in partnerships, trusts, subchapter S corporations, C corporations, other foreign entities, a relationship with private foundations, and large gifts. The cases can require involving cross-border and financial products experts, engineers, and appraisers to conduct the examination.
- Office of Fraud Enforcement (OFE): technical advisors provide fraud policy and operations support to all IRS operations. OFE has provided “Fraud Bootcamps” (advanced technical training) to more than 12,000 front line examiners, Managers and Chief Counsel personnel during the first quarter of 2021. “Operation Hidden Treasure” is part of the OFE focusing on the hidden ownership of virtual currencies in order to enable the IRS to pursue undisclosed taxable transactions.
- Office of Promoter Investigations (OPI): focuses on taxpayers and the promoters of abusive tax avoidance transactions, including abusive Syndicated Conservation Easements, abusive Micro-Captive insurance arrangements, virtual currencies, and offshore transactions engaged in by high-income/high net worth individuals. OPI coordinates enforcement activities by interacting with the IRS Large Business and International Division, Small Business/Self-Employed Division, Tax Exempt & Government Entities Division, the Office of Chief Counsel, the OFE and, IRS Criminal Investigation.
IRS will continue to expand Focused Examinations on the High-Income and High Net Worth Taxpayer
It is evident that the IRS has shifted its examination resources and technology to increase its focus on high-income and high net worth taxpayers. IRS has placed its most experienced Revenue Agents with “substantial accounting skills” against the population of High-Net-Worth/High-Net-Income Individuals and all of the complex issues associated with their tax returns.
Out-of-compliance Taxpayers should prepare for tougher IRS enforcement.
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