Major IRS Reform will Boost Fairness in the Tax System

WASHINGTON – With the boost from Inflation Reduction Act (IRA) funding, the Internal Revenue Service (IRS) is set to undertake a monumental initiative to instill greater equity in tax enforcement. The focus is shifting from the working-class to high-earning individuals, significant corporations, partnerships, and others who manipulate tax laws.

The goal is to counteract the decline in audit rates for affluent taxpayers over the past decade by leveraging advanced technologies and Artificial Intelligence (AI). These tools will aid the IRS in uncovering tax fraud, spotting emerging threats, and refining the audit selection process.

Highlights of the New IRS Initiative:

  1. Protecting the Average Earner: Audits won’t increase for those earning below $400,000 annually. The IRS is also incorporating more safeguards for those claiming the Earned Income Tax Credit (EITC), which was created for modest-income workers.
  2. Crackdown on Wealthy Tax Avoidance: IRS Commissioner Danny Werfel emphasized that this initiative is a realization of the IRA’s promise to ensure the wealthiest taxpayers fulfill their tax obligations. He acknowledged the historical low audit rates for the affluent and pledged to redirect the new funds towards holding them accountable.
  3. Evolving Compliance Methods: Key features of this revitalized effort include:
    • High-income Cases: The IRS will zero in on individuals with a positive income over $1 million who owe more than $250,000 in taxes. This focus aims to recover a significant portion of tax revenue from high-income earners.
    • Leveraging AI for Large Partnerships: The IRS will extend its Large Partnership Compliance (LPC) program, which began in 2021. Using AI, they’ll examine some of the most intricate partnership returns, focusing on entities like hedge funds, real estate partnerships, large law firms, and more.
    • Spotting Partnership Discrepancies: The IRS identified persistent mismatches in balance sheets of partnerships with assets exceeding $10 million. With the new IRA funding, they’re positioned to actively address these irregularities.
  4. Enhanced Focus Areas for 2024:
    • Digital Assets: An expansion in oversight of digital assets is on the horizon, given the potential high non-compliance rate among digital currency users.
    • FBAR Violations: The IRS plans to heighten scrutiny on taxpayers who use Foreign Bank accounts to sidestep tax obligations.
    • Addressing Labor Broker Issues: The IRS has pinpointed schemes where contractors make payments to shell companies. They’ll be ramping up investigations, especially in states like Texas and Florida.
  5. Protecting the Average Taxpayer: Alongside increased focus on the wealthy, the IRS aims to safeguard all taxpayers from scams. They will implement measures to guarantee audit fairness and educate the public on scam avoidance.
    • Improved EITC Audits: Enhancements in audits involving the EITC are underway, with further details to be unveiled soon.
    • Raising Scam Awareness: The IRS will keep the public informed about potential scams, especially ones that emerge rapidly and confuse taxpayers.
    • Identity Theft Prevention: Building on the Security Summit initiative, the IRS will persist in its efforts to shield taxpayers from identity theft, partnering with state tax agencies and the nation’s tech industry.

By ushering in these changes, the IRS hopes to create a more just and efficient tax system. Commissioner Werfel summed it up: “This is a transformative moment for the IRS, underpinned by respect for taxpayer rights. We are sharpening our focus, employing cutting-edge technology to enhance our operations, and holding those abusing the system accountable.”

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