IRS announces its shift in focus and its upcoming compliance programs

The Internal Revenue Service (IRS) is launching a comprehensive effort to improve tax compliance, focusing on high-income earners, partnerships, large corporations, and tax law abusers.  This initiative, funded by the Inflation Reduction Act, aims to address declining audit rates for high-income taxpayers and will leverage technology and Artificial Intelligence (AI) to better detect tax evasion and select cases for audit efficiently.

Key parts of this initiative include:

  1. Focus on High-Income Earners: The IRS will pay more attention to wealthy individuals and partnerships that have seen significant drops in audit rates over the past decade.  They will use advanced technology, including AI, to detect tax cheating and emerging compliance threats.  The IRS recently announced that it had collected $38 million from 175 high-income earners.
  2. Protection for Low- and Middle-Income Earners: The IRS will ensure that audit rates do not increase for individuals earning less than $400,000 per year and will implement fairness safeguards for those claiming the Earned Income Tax Credit (EITC), designed to assist low-income workers.
  3. Large Partnership Compliance: The IRS is expanding its Large Partnership Compliance program to additional large partnerships with at least $10 million in assets.  With the help of AI, the selection of these returns is the result of applying cutting-edge machine learning technology to identify potential compliance risk in the areas of partnership tax, general income tax and accounting, and international tax in a taxpayer segment that historically has been subject to limited examination coverage.
  4. Foreign Bank Account Report (FBAR) Violations: IRS analysis of multi-year filing patterns has identified hundreds of possible FBAR non-filers with account balances that average over $1.4 million.  The IRS plans to audit the most egregious potential non-filer FBAR cases in Fiscal Year 2024.
  5. Other Priority Areas: The IRS will expand compliance efforts related to digital assets and labor brokers involved in fraudulent payment schemes.
  6. Protecting All Taxpayers: The IRS will work to protect taxpayers from scams and schemes, especially related to Earned Income Tax Credits, emerging scams, and identity theft.

For more information, please see IRS News Release IR-2023-166 dated September 8, 2023. If you have questions regarding how this announcement may affect you, please don’t hesitate to contact us.

The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice. This communication may not be applicable to your specific circumstances and may require consideration of non-tax and other tax factors if any action is to be contemplated. Please contact your tax professional prior to taking any action based on this information. Accuity LLP assumes no obligation to the reader of any changes in tax laws or other factors that could affect the information contained herein.