IRS Focus Is Shifting, Are You In The Crosshairs!

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The Internal Revenue Service's (IRS) intends to shift its focus toward high-income individuals, wealthy taxpayers, and complex pass-through entities as part of its efforts to improve tax compliance. This shift is being funded through the Inflation Reduction Act and aims to target tax avoidance strategies commonly used by these groups. Here are some key points to note about their efforts:

1. IRS's Focus on High-Income Individuals and Corporations: The IRS plans to expand its compliance efforts aimed at high-income individuals and corporations. This includes the use of large or complex pass-through entities, such as S corporations and partnerships, which are sometimes used to minimize tax obligations. Its important to note that both of these tax entities are employed by smaller net worth individuals being paid as contractors as well.
2. Funding Source: The IRS's efforts are funded in part by the Inflation Reduction Act (IRA), and it is noted that there is still a significant amount of unspent funding available for this purpose.
3. Political Considerations: There is political debate surrounding IRS funding and enforcement efforts, with references to discussions in Congress about budget restrictions and debt limit negotiations.
4. IRS Staffing: The IRS intends to hire additional revenue agents (3,700 in this case) to conduct examinations and improve enforcement. This is seen as a step toward rebuilding the IRS's enforcement capabilities.
5. Use of Artificial Intelligence (AI): The IRS plans to leverage AI technology to enhance its audit capabilities. The use of AI is expected to enable more efficient and extensive auditing, particularly in the examination of high-net-worth (HNW) individuals and partnerships.
6. Educating Taxpayers: There is an emphasis on educating taxpayers and professionals about the IRS's increased focus and the possibility of legal gray areas in tax returns. It is noted that not every position taken by a Certified Public Accountant (CPA) on a return will necessarily align with the IRS's perspective.

Overall, the IRS is taking steps to improve its enforcement efforts, particularly targeting high-income individuals and corporations that may use complex structures to minimize their tax obligations. Essentially hiring 3,700 additional people to examine 3 million taxpayers. The use of technology, such as AI, is expected to play a significant role in enhancing the IRS's audit capabilities enabling the agency to direct their focus towards non-compliant returns. Taxpayers and tax professionals are encouraged to stay informed about these developments and be aware of potential legal gray areas in tax compliance.

If ever you’re feeling overburdened by your tax situation or you’d rather be doing something else with your time, just remember we’re here to help you with all of your tax preparation, resolution/representation needs.  Now and in the future. Don’t put off addressing your tax situation. Feel free to contact us or message us with any questions you may have in approaching your specific tax scenario.