Under the Biden Administration, the Internal Revenue Service (IRS) may see a significant boost in budget. Now is the time to consider best practices for that time when the IRS may not be as budget throttled as it is at present.
In May, President Bident proposed the American Families Plan, a sweeping initiative intended to invest in American families and communities. In order to fund the Plan, the Administration intends to introduce and enforce compliance measures to narrow the tax gap—the difference between the amount of taxes owed, and the amount of taxes paid to the government.
As noted in the American Families Plan Tax Compliance Agenda, President Biden intends to “rebuild” the IRS in ways that include:
- Refund the IRS with approximately $80 billion in additional funding over the next decade
- Boost information provided to the IRS about American taxpayers through third-party reporting
- Update IRS technology
- Regulate tax preparers
Assume over time that the IRS doubles its workforce and has the budgetary resources to hire and retain financial, tax, and forensic specialists that can actually carry out its mandate. Imagine that corroborating tax information from financial vendors is analyzed through high-end tech using sophisticated algorithms and artificial intelligence (AI). That is a whole different ballgame that the current bootstrapped and understaffed agency that must carefully pick and prosecute only those errant taxpayers it can afford to pursue.
Before that happens, there is time to address compliance within your business and your individual tax profile. Consider these tips:
- Individuals with higher net worth can expect heightened scrutiny if the IRS is funded appropriately. Audit numbers have fallen year after year even with the use of computer-matching. Those numbers will climb again over time. With that expectation, a thorough review of individual, family, and corporate tax strategies, payments, and structure is worth considering.
- Documentation during an IRS civil audit (and especially during a criminal audit) is crucial. High income earners have a tough time convincing the IRS they did not know they needed to document their earnings and losses. When money is moved, it should leave a paper trail. Be prepared to provide it if asked.
- Overall, be sure your documentation is consistent and complete over time. The sudden appearance of significant losses is likely to attract attention. Ensure you can back up valuation discounts for estate and gift taxes. The IRS once made these discounts the focus of enforcement efforts and may do so again.
Prepare for this potential enforcement change-up by working with a tax lawyer who understands compliance and can detect where you, your family, or business are at risk of an enforcement action. There is no time like the present to prepare for an IRS with the budget to actually do its job.
Experienced advice from a skilled criminal tax attorney is a phone call away
The reach of the IRS impacts all U.S. persons responsible for paying taxes. If you are facing allegations of tax crime, an employment tax dispute, or other tax controversy, contact our office for a free initial consultation. With offices in Ohio, the law group at Robert J. Fedor, Esq., L.L.C. services clients in Cleveland, Chicago, and across the nation. Call 800-579-0997 or contact us.