The Internal Revenue Service (IRS) has witnessed a notable transformation in the 2023 filing season, attributed to the substantial impact of the Inflation Reduction Act (IRA) investments. Buoyed by this success, the IRS has redirected its focus toward fortifying enforcement measures, particularly targeting high-income individuals, complex partnerships, and large corporations found delinquent in paying overdue tax obligations.
Enhanced Enforcement Initiatives
The IRS has unveiled a series of initiatives aimed at holding large corporations accountable for their tax responsibilities. As part of these efforts:
- Cracking down on Large Foreign-owned Corporations: The IRS is intensifying its efforts on U.S. subsidiaries of foreign firms distributing goods within the U.S., ensuring they pay their due share of taxes on U.S. activity profits. With approximately 150 subsidiaries receiving compliance alerts, the focus is on preventing the improper use of transfer pricing to underreport U.S. profits.
- Expansion of Large Corporate Compliance Program: The Large Business & International Division’s Large Corporate Compliance program, concentrating on data analytics to identify large corporate taxpayers, is set to expand. Sixty additional audits will be initiated, using artificial intelligence to target complex corporate transactions and cross-border issues.
- Combatting Abuse of Corporate Tax Breaks: In response to an influx of refund claims exceeding $6 billion following the 2017 repeal of a tax code provision, the IRS has launched a campaign to review high-risk claims. Recent wins in appellate courts affirm the IRS stance, reinforcing their efforts in this domain.
- Prioritizing High-income Cases: The IRS is aggressively pursuing high-income, high-wealth individuals with more than $1 million in income and substantial recognized tax debts. Notably, revenue officers are focusing on collection cases, with $122 million already collected from 1,600 cases flagged under this category.
Recent cases closed post-IRA enactment highlight the success of IRS efforts:
- An individual has been ordered to pay $15 million in restitution for falsifying millions of dollars of expenses as business deductions, financing extravagant personal expenses.
- Another individual pled guilty to filing false tax returns, diverting business funds for personal use and gambling.
- A case involving fraudulent acquisition of $5 million in COVID relief loans led to a 54-month federal prison sentence.
Service Enhancement and Technological Modernization
Concurrently, the IRS is intensifying efforts to aid taxpayers in navigating their obligations efficiently. Their focus areas include:
- Community Assistance Visits and Taxpayer Assistance Centers: Expanding in-person services and outreach to underserved areas through events and assistance centers.
- Online Account Enhancements: Plans to enable secure, end-to-end interactions for taxpayers, with improved online account functionalities and mobile-friendly form submissions.
Recognizing the importance of technology in service delivery, the IRS is undertaking digitalization initiatives, including the scanning and e-filing of paper returns. This modernization aims to minimize errors, expedite processing, and bolster customer service by enhancing data accessibility for IRS employees.
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