After the IRS unveils its plans to spend billions in new funding, wealthy and international taxpayers can expect new attention from the agency in coming years.
The Internal Revenue Service has released its strategic operating plan for the next decade, the agency’s blueprint for how it plans to spend $80 billion in funding that was green lighted by last year’s passage of the Inflation Reduction Act.
More than $45 billion of the funding is slated for enforcement. The IRS will also be hiring tens of thousands of new employees, partially to make up for ongoing attrition and years of declining funding and staffing. The remainder of the funding will go toward IRS taxpayer services, operations support and business systems modernization.
The plan provides “a vision for the future” of U.S. tax administration, IRS Commissioner Daniel Werfel wrote in the introduction to the 150-page document, including “new capacities, including specialized skills, in place to unpack the complex filings of high-income taxpayers and large corporations and partnerships.”
This will address “a growing chasm between the number of experienced compliance personnel at the IRS who audit high-income, high-wealth tax filings for compliance (about 2,600 employees) and the roughly 30,000 individuals making more than $10 million a year, 60,000 large corporations and 300,000 large partnerships and S corps,” the agency said.
How the agency will heighten scrutiny of international taxpayers is still unclear, but the plan does promise to “enhance detection of noncompliance and increase enforcement activities for complex, high-risk, and novel emerging issues, including digital assets, listed transactions and certain international issues.”
“The IRS tracks many known, high-risk issues in noncompliance, such as digital asset transactions, listed transactions and certain international issues. These issues arise in multiple taxpayer segments, and data analysis shows a higher potential for noncompliance. Recent resource limitations have prevented the IRS from sufficiently examining these issues, while new issues that could significantly raise noncompliance and fraud schemes emerge each year, especially as new tax laws are enacted,” the plan reads.
The agency says that shortfalls limit its ability to address the tax gap – estimated at some $496 billion and expected to increase without significant investment – and outstanding tax revenue from such higher-risk segments as international activity. “Because of limited compliance coverage in areas such as complex partnership structures and certain international tax issues, the IRS has fewer data points to accurately estimate the true size of the tax gap in these segments. Global tax authorities are using innovative ways to focus enforcement on high-priority segments.”
The plan also mentions streamlined “connections among systems, services, and infrastructures” that process international and business tax balances and easier payment options with those with foreign bank accounts and foreign currency.
“For issues known to have high, ongoing risks of noncompliance or complexity, such as digital assets and listed transactions, we will prioritize resources to increase enforcement activities, including criminal investigation as appropriate. We will improve detection of emerging issues and gather feedback within the IRS to identify trends and risks,” the plan adds.
Werfel indicated that the IRS would regularly report on its progress to Congress and that more details, particularly on staffing and technology spending, would be forthcoming as the agency prepares to submit its budget to Congress. Clearly, international taxpayers can expect to be part of IRS developments as the new plan takes shape.
Your tax specialist needs to stay on top of this and many other developments concerning wealth, foreign income and tax enforcement. If we can help, please let us know.
Have a question? Contact Alicea Castellanos, Global Taxes LLC
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