Almost any tax lawyer in San Jose has likely heard about the pledge of the Internal Revenue Service to pursue approximately 1,600 millionaires for the purpose of collecting back taxes. A year after Congress designated additional funding to the IRS for a total in the billions, the agency is making its move. The goal of collecting the back taxes also involves going after partnerships, large legal firms, and hedge funds. This continuing compliance clampdown has been described as historic, and sweeping changes are expected.
AI May Play a Crucial Role
Not surprisingly, the IRS may avail itself of Artificial Intelligence to refine its methods for ferreting out those that have skirted tax laws in the past. It is not known if the 1,600 millionaires currently being targeted were identified through the use of AI, but it’s unlikely that any IRS tax lawyer would be surprised to discover this was the case. It is believed that use of AI may be very helpful in spotting suspicious trends and patterns.
The first 1,600 millionaires caught in the crosshairs of the new IRS initiative collectively owe hundreds of millions of dollars. In July, a spokesperson for the agency stated that each of the 1,600 filers had a tax debt of at least $250,000. Experts believe that the best course of action for these individuals is to consult a back-taxes attorney to discuss compliance strategies among other topics.
IRS Commissioner Speaks of Permanent Changes
IRS Commissioner Danny Werfel stated last week that the historic and sweeping changes will permanently affect compliance work done by the agency, and that audit rates are expected to increase. Some IRS officials have cited staffing problems and lack of funding as impediments to catching rich tax cheats, since these issues made it difficult to complete the complex audits necessary to successfully catch such individuals. Now, progress is finally being made. For example, a report in July stated that $38 million in back taxes has been collected from a total 175 millionaires.
Narrowing the Gap Between Taxes Paid and Taxes Owed
Former IRS Commissioner Charles Rettig spoke in previous years of the challenge of estimating the gap between taxes paid by wealthy individuals and the actual amounts owed. Rettig estimated the number could be as high as $1 trillion annually, again citing the shortage of staff to scrutinize complicated returns. The IRS hopes that new efforts, as well as additional funding, will remedy this situation.
New Audits on the Horizon for Large Partnerships
Commissioner Werfel also stated last week that approximately 75 large partnerships are being targeted for audits, including publicly traded partnerships, large legal firms, hedge funds, and real estate investment partnerships. The organizations will be informed of the audits in the near future. Most average approximately $10 billion in assets. Not all organizations will be found owing, and, in some cases, even complex audits will not lead to a change in the person or organization’s tax bill. Rather, the goal is tax fairness, according to Werfel.
Cryptocurrency Holders and Foreign Bank Account Owners Also Under Scrutiny
Beginning in October, the IRS also plans to step up scrutiny for tax filers who own foreign bank accounts or have cryptocurrency holdings. Cryptocurrency, such as bitcoin, has long been on the IRS’s radar, but new efforts to smoke out tax cheats who use cyber-money are also being planned. The advice of a tax-audit representation lawyer is recommended for anyone with concerns about being audited or who may be flagged as delinquent in tax payments. Therefore, those with concerns about the IRS’s new efforts should seek the advice of a San Jose tax attorney without delay.