by Kelly Hanley, Esq.
New Targets: IRS Auditors Cracking Down on 1,600 Millionaires and Millions of Dollars in 2023
The Internal Revenue Service (IRS) recently made headlines with its announcement to aggressively pursue 1,600 millionaires and 75 large business partnerships that owe hundreds of millions of dollars in past due taxes. IRS Commissioner Daniel Werfel emphasized the agency’s new capabilities, thanks to federal funding and artificial intelligence tools, to target wealthy individuals and businesses who have “cut corners” on their taxes. As a tax attorney with 25 years of experience, I find this development both intriguing and timely. This blog post aims to dissect the IRS’s new compliance efforts, the technology driving it, and the political landscape that could either fuel or foil these plans.
The IRS’s New Tax Compliance Efforts
The IRS is not just blowing hot air; they are putting their money where their mouth is. With a boost in federal funding under President Biden’s administration, the agency has embarked on a massive hiring effort. The IRS is also leveraging AI research tools developed by its employees and contractors to identify wealthy tax dodgers more efficiently.
Werfel mentioned that these new tools enable the IRS to see “patterns and trends” that were previously elusive. This is a significant advancement, considering that a study by academic economists and IRS researchers in 2021 revealed that the top 1% of U.S. income earners fail to report more than 20% of their earnings.
The Role of Technology: AI Changes to the Rescue
Artificial Intelligence (AI) is not just for self-driving cars or beating humans at chess anymore; it’s making its way into tax enforcement. The IRS’s use of AI tools to identify non-compliance is a game-changer. These tools can sift through vast amounts of data to identify discrepancies and patterns that would take a human tax auditor a considerable amount of time to spot.
Imagine a scenario where AI algorithms could flag potential tax evasion strategies commonly used within large business partnerships. This would allow the IRS to focus their human resources on more complex cases that require a nuanced understanding of tax law, something that AI is not yet capable of.
The Political Chessboard
While the IRS is gearing up for a busy fall, the political landscape could throw a wrench in their plans. House Republicans have already built a $1.4 billion reduction to the IRS into the debt ceiling and budget cuts package. Moreover, there’s an agreement to divert $20 billion from the IRS over the next two years to other non-defense programs.
In a climate where the threat of a government shutdown looms large due to disputes over spending levels, the IRS’s new compliance efforts could be at risk. It’s a political chess game, where the IRS’s ability to enforce tax compliance is a pawn that could be sacrificed for other political objectives.
The Inflation Reduction Act: A Double-Edged Sword
The Inflation Reduction Act, signed into law by President Biden in August 2022, initially seemed like a boon for the IRS. The agency was in line for an $80 billion infusion under the law. However, this financial boost is vulnerable to potential cutbacks by Congress.
It’s like giving someone a gift card to a gourmet restaurant and then telling them they can only order appetizers. The IRS has been handed a powerful tool in the form of the Inflation Reduction Act, but political maneuvering could severely limit how it’s used.
The Moral Quandary for Audits
Werfel pointed out that taxpayers who dutifully pay their taxes on time should find it “particularly frustrating” when wealthy filers do not. This moral dimension adds another layer to the IRS Crack Down. It’s not just about recouping lost revenue; it’s about restoring faith in a system that many believe disproportionately favors the wealthy.
The IRS’s new compliance efforts represent a significant step forward in tax enforcement, aided by advancements in technology and federal funding. However, the political landscape poses a considerable challenge that could undermine these efforts.
As someone who has spent a quarter of a century representing taxpayers before the IRS, I can say that this new initiative could be a watershed moment for tax compliance in the United States. But like any watershed moment, it could go either way—ushering in a new era of fairness and efficiency or becoming a footnote in the annals of political wrangling.
So, as the IRS gears up for a “very busy fall,” the rest of us will be watching closely, popcorn in hand, to see how this drama unfolds. After all, when it comes to taxes, the only thing certain is uncertainty.
Why is the IRS so difficult?
The IRS’s difficulty is a multifaceted issue, rooted in complex tax laws, bureaucratic challenges, resource constraints, and the emotional and political factors that come into play. While there is no magic wand to make dealing with the IRS easy, understanding the underlying reasons for its complexity can help taxpayers better prepare for interactions with the agency.
As someone who has navigated the intricate corridors of the IRS for a quarter of a century, I can say that while the agency may be difficult, it is not insurmountable. With the right guidance and preparation, dealing with the IRS can be less of a nightmare and more of a manageable, albeit challenging, task.
Can I file a hardship with the IRS to get my refund?
If you find yourself in a financial bind and are awaiting a tax refund, you might be wondering if there’s a way to expedite the process. The IRS does have provisions for taxpayers facing significant financial hardship to receive their refunds more quickly, although the process is not straightforward.
Before diving into the process, you needl to understand what the IRS considers a “hardship.” Generally, a hardship case is one where a taxpayer is experiencing significant financial difficulty, such as the inability to pay for basic living expenses, facing eviction, or dealing with medical emergencies. The IRS will require substantial evidence to prove that you are indeed facing hardship.
The first step in filing for hardship with the IRS is to fill out Form 911, “Request for Taxpayer Advocate Service Assistance.” This form allows you to explain your situation in detail and request the intervention of a taxpayer advocate. The Taxpayer Advocate Service is an independent organization within the IRS that helps taxpayers resolve issues with the agency.
You will need to provide supporting documentation to substantiate your hardship claim. This could include eviction notices, medical bills, bank statements, and other evidence that demonstrates your financial predicament. The more comprehensive your
Once you’ve submitted Form 911 and the necessary documentation, your case will be reviewed by a taxpayer advocate. They will assess the urgency of your situation and may contact you for additional information. If your case is approved, the advocate will work with the IRS to expedite the processing of your refund.
There are several potential outcomes when filing for hardship:
- Expedited Refund: If your case is approved, the IRS will expedite the processing of your refund.
- Partial Release: In some instances, the IRS may release a portion of your refund to alleviate immediate hardship, while continuing to review your case.
- Denial: If the IRS determines that your situation does not qualify as a hardship, your request will be denied, and you will have to wait for the standard processing time to receive your refund.
Filing for hardship is not without its risks. The IRS may scrutinize your financials more closely, which could lead to delays if discrepancies are found. Additionally, if your request is denied, you may have used up valuable time that could have been spent exploring other financial options.
What if the IRS disagrees with the amount due?
It’s a situation that can send shivers down the spine of even the most seasoned taxpayer: you’ve filed your taxes, but the IRS disagrees with the amount you claim is due. Whether it’s a discrepancy in income, deductions, or credits, finding yourself at odds with the IRS can be a daunting experience.
The first indication that the IRS disagrees with your tax return is usually a letter in the mail. This correspondence will outline the specific issues the IRS has identified and provide a recalculated amount that they believe you owe. Read this letter carefully and understand the basis for the IRS’s disagreement.
Upon receiving the IRS letter, you generally have three options:
- Agree and Pay: If you agree with the IRS’s assessment, you can simply pay the amount due and consider the matter closed.
- Dispute the Amount: If you disagree, you can challenge the IRS’s assessment. This is where things get complicated, and professional advice is often necessary.
- Request More Time: If you need more time to review the situation, you can request an extension. However, interest may continue to accrue on the amount due.
The first step in disputing the IRS’s assessment is to gather all relevant documentation that supports your case. This could include income statements, receipts for deductions, or proof of tax credits.
Given the complexity of tax laws and IRS procedures, consulting a tax professional is often advisable. They can help you understand the IRS’s position, identify errors, and guide you through the dispute process.
To officially challenge the IRS’s assessment, you’ll need to file a formal dispute. This usually involves submitting a written statement outlining your case, along with any supporting documentation. The specific form or method of submission may vary depending on the issue at hand.
Once your dispute is filed, the IRS will review your case. This could lead to negotiations, where you and the IRS attempt to reach a settlement. In some cases, you may be able to agree on a reduced amount or a payment plan.
If you’re unable to reach a settlement, you have the option to appeal the decision. This involves a more formal legal process and may require representation by a tax attorney. Appeals can be time-consuming and costly, so they are generally considered a last resort.
Disputing an amount with the IRS is not without risks. The agency may decide to conduct a more comprehensive audit of your finances, which could uncover additional discrepancies. Moreover, interest and penalties may continue to accrue while the dispute is being resolved, increasing the amount you ultimately owe.
Disagreeing with the IRS over the amount due on your taxes is a complex and often stressful process. However, it’s not an insurmountable challenge. With meticulous preparation, proper documentation, and professional guidance, you can navigate the maze of IRS procedures to resolve the dispute.
Why is the IRS not paying refunds?
One of the primary reasons for a delayed refund is the IRS’s need to verify information on your tax return. This could involve cross-referencing income reported by employers or other entities, or validating deductions and credits you’ve claimed.
Mistakes in your tax return, such as incorrect Social Security numbers, mathematical errors, or incomplete information, can also lead to delays. The IRS will typically send a notice requesting clarification or additional documentation.
The IRS has stringent measures to prevent identity theft and fraudulent claims. If your tax return triggers any red flags, it may be subject to additional scrutiny, delaying your refund.
If you owe back taxes, child support, or have other federal debts, the IRS may withhold your refund to offset these liabilities.
The IRS has been grappling with budget cuts and staffing issues for years. These constraints can result in operational delays, affecting the timely processing of refunds.
The IRS provides an online tool called “Where’s My Refund?” that allows you to track the status of your refund. This can give you an idea of where your refund is in the processing pipeline.
If the IRS sends you a notice requesting additional information or clarification, respond as quickly as possible. Delays in responding can further postpone your refund.
If your refund is delayed for an extended period, or if you’re facing complications such as an audit or other legal issues, consulting a tax professional is advisable.
If you discover errors in your original tax return that could be causing the delay, you may need to file an amended return to correct these issues.
While waiting for a tax refund can be frustrating, understanding the reasons behind the delay can help you take proactive steps to resolve the issue. Whether it’s a matter of verification, errors in your filing, or systemic issues within the IRS, knowing the cause can guide you in finding a solution.