IRS Special Enforcement
On September 8, 2023, the IRS announced a “sweeping effort” to target America’s wealthiest taxpayers. That will include IRS scrutiny of income tax returns filed by 1,600 individual millionaires and a large number of partnerships. This IRS endeavor will be funded by the Inflation Reduction Act of 2022.
The IRS is continuing this drumbeat after its September 20, 2023 announcement of establishing a new, special enforcement team staffed with new employees. These new IRS auditors will focus on “complex partnerships, large corporations, and high-income and high-wealth individuals.”
IRS Commissioner Werfel’s Position
IRS Commissioner Werfel explained that developing this new team “is another part of our effort to ensure the IRS holds the nation’s wealthiest filers accountable to pay the full amount of what they owe.” Commissioner Werfel emphasized: “We are honing in on areas where we believe non-compliance among our wealthiest filers has proliferated over the last decade of IRS budget cuts, and pass-throughs are high on our list of concerns.”
The IRS efforts are designed to reverse what IRS Commissioner Werfel described as, “years of underfunding” that has “led to the lowest audit rate of wealthy filers in our history.”
What Does That Really Mean?
- The IRS is strengthening its enforcement efforts. It has been at it for a while now. It finally has the budget and funding to be impactful.
- In the past six months, it has been deploying resources to hire, train, and deploy auditors in areas of particular focus.
- The IRS is leveraging technology for pattern recognition to identify areas of non-compliance faster and focus on a wide range of taxpayers via algorithms and AI.
- The lessons the IRS has been learning by examining larger partnerships and wealthier taxpayers, it will be applying down the line to smaller yet mid-size partnerships and less wealthy yet high net worth taxpayers.
This is no real news to tax attorneys. We have been witnessing the influx of IRS job posts and IRS informational webinars. We are seeing intensified activity above the $250,000 tax debt threshold where IRS examiners are assigned. We are seeing a lot more IRS correspondence audits below the $250,000 tax debt threshold. IRS correspondence audits are the result of pattern recognition across tax years and across taxpayers. Frequently, taxpayers do not even realize they are being audited because virtually the entire audit is conducted by mail.
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