IRS’s Bold Crackdown: Millionaires and Mega-Corporations in the Crosshairs for Tax Evasion!

The IRS has been actively working to pursue 1,600 millionaires each owing $250,000 or more in overdue taxes as well as 75 business partnerships that claim $10 billion each in assets. On January 12th, they shared their progress, reporting they have collected $360 million most recently on top of $122 million reported in late October.

The IRS is adding resources to this effort and hopes to reverse the lack of attention that the wealthiest individuals and businesses have faced. This focus has caused much controversy and many want to know more about how this effort is happening and who it targets.

Who is the IRS Targeting?

Thanks to the 2022 Inflation Reduction Act, the IRS was designated $80 billion with over half dedicated to hiring more IRS enforcement agents. This will help identify where taxpayers are underreporting or hiding their income to evade taxes.

The effort includes increasing audit rates which makes many people nervous. The good news is, it will not affect those who are earning less than $400,000 a year. The goal is to identify and pursue those who owe a significant amount in taxes as millionaires, billionaires, and large partnerships.

What the IRS is Changing for Millionaires and Large Partnerships

There are many ways the IRS is working to acquire unpaid taxes. Their two biggest assets to the effort are artificial intelligence and hiring new accountants. In November and December, the IRS offered more than 560 positions to people who applied. These two additions allow the IRS to start implementing several plans.

Making High-income Cases a Top Priority

Those with high incomes who have not filed taxes or have not paid their tax debt are going to become a top focus. The IRS is designating dozens of revenue officers to specifically focus on these cases. The people impacted will be millionaires who owe $250,000 or more in taxes.

The IRS has already collected from more than 175 wealthy earners and began contacting 1,600 others this last fall. The total recovered so far from this effort adds to $520 million. This is the beginning of their efforts

Pursuing Balance Sheet Discrepancies

There are several partnerships with over $10 million in assets that the IRS has identified as having discrepancies on their balance sheets. Millions of dollars in discrepancies between end-of-year balances and beginning-of-the-year balances in these partnerships have been found.

Because of this, September brought an initiative to handle the balance sheet differences. 480 compliance alerts have been sent out since then. Due to the lack of staffing in the IRS, businesses have been able to get away with such discrepancies, but with new initiatives and the use of artificial intelligence, it will get more difficult.

Using AI to Help with Audits of 76 Large Partnerships

Artificial intelligence has been groundbreaking in the last several years and is going to play an important role in tax audits for the IRS. Complicated structures in large partnerships have required specialized attention to determine where the tax issues are. In 2021, the Large Partnership Compliance program was launched, examining several of the most complicated partnership returns. The IRS aims to further this effort with the help of AI.

With AI on their side along with experts in data science, the IRS will be able to identify the top partnerships to examine. As of December, 76 of the largest partnerships will have examinations opened by the IRS. Each of these partnerships has more than $10 billion in assets.

Keeping Large Foreign-Owned Corporations Accountable for Taxes

Large foreign-owned corporations that sell goods within the US have gotten away with paying less than their share in taxes due to manipulating transfer pricing rules to their advantage. This has resulted in a significant tax loss.

The IRS is dedicated to stopping this strategy and as of mid-November implemented a plan. 180 subsidiaries of large foreign corporations have received compliance alerts encouraging self-correction and reiterating the obligation they have to pay proper US taxes.

Adding Resources to Large Business & International Division’s LCC Program

At the beginning of this year, Large Business & International Division’s (LB&I) Large Corporate Compliance (LCC) program will have new accountants hired. This helps expand the program by allowing it to audit 60 additional corporate taxpayers who average more than $24 billion in assets and make roughly $526 million a year.

Cracking Down on Wealthy Self-Employment Partners

Lastly, the IRS has also raised its efforts in pursuing self-employment partnerships where wealthy individuals may be incorrectly identifying as “limited partners” when they are actively involved.

As of January 12, over 80 wealthy self-employed individuals are being subject to audit. Additionally, the tax court agrees with the IRS that the limited partner exception does not apply to those limited in name only. This means that partners who actively participate in the state law limited partnership must classify their income as net earnings from self-employment, subjecting themselves to self-employment tax obligations.

The Impact of the IRS’s New Tax Enforcement Efforts

The IRS’s intensified focus on tax enforcement against millionaires and big corporations indicates a significant shift in its approach to tackling tax evasion and ensuring compliance. As the IRS continues to strengthen its enforcement measures, it sends a clear message that tax compliance will be rigorously monitored, and those with substantial financial means will face heightened scrutiny to uphold the principles of a fair and equitable tax environment.

Get in Touch with our Trusted Tax Lawyers for Peace of Mind

At Silver Law, PLC, our trusted tax attorneys are well-equipped to provide expert guidance and support, ensuring that individuals and businesses understand and comply with the latest regulations. We can help you navigate audits, address compliance issues, and mitigate potential risks associated with the IRS’s heightened scrutiny.

Don’t hesitate to get in touch with our team for reliable assistance in navigating the new IRS tax enforcement landscape.

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