The Biden administration is granting the IRS an extra $80 billion under the newly passed Inflation Reduction Act
I have seen some of my competitors use it to fuel their fear tactics like the example below published by Moody’s and I must address it.
“Overall with the 87,000 new agents the IRS will become larger in numbers than the Pentagon, State Department, FBI, and Border Patrol combined. Many are arguing the US could certainly use 87,000 more teachers, nurses, mental health workers or border agents who are stretched thin right now at the Southern Border – before IRS Agents. But let’s remember that those much needed hires wouldn’t result in the return on investment that 87,000 IRS Agents will. And they get to carry a gun.
This move allows the IRS to go into what the Wall Street Journal calls “beast mode”. They will be focused on bill enforcement and collection like never before, and someone is going to have to foot the bill for this extravagant spending. So, who do you think the IRS will target with future audits to help recoup the costs? You and the other 9+ Million U.S. Citizens living abroad?”
On May 2, 2022, the Wall Street Journal published two detailed articles authored by Richard Rubin on the subject of syndicated conservation easements: Conservation Tax-Break Deals Keep Flowing Despite IRS Crackdown (WSJ 2022.05.02) and How a Georgia Pine Farm Became a Significant Tax Deduction (WJS 2022.05.02). In the first article, the author notes that IRS data released in 2020 showed syndicated easement deductions climbing from $6 billion in 2016 to $9.2 billion in 2018. And, the author quotes the head of the IRS’s business and international division as stating, “We don’t feel like we’ve seen the full impact of our [the IRS’s] efforts just yet. . . . We view it as abusive and problematic, and we will continue to throw significant enforcement tools” at abusive syndicated conservation easement tax shelters.
In the second article, the author focuses on a specific 434-acre pine-tree farm in Georgia and its dedication for conservation purposes pursuant to a syndicated easement arrangement. The author writes, “In 2020, some McGinnis family members sold off three-fifths of the property for $310,000. By the end of 2021, the . . . land had been sold again, this time to a business that raised $10.7 million from investors in a land-conservation deal. That transaction could yield its investors millions of dollars more in tax deductions—as well as scrutiny from the Internal Revenue Service.” Rubin writes that billions of dollars of tax revenue are at stake in abusive syndicated conservation easement tax shelters.
Gregory v. Comm’r, T.C. Memo. 2021-115 | September 29, 2021 | Jones, J. | Dkt. No. 10336-18
Short Summary: During tax years 2014 and 2015, Petitioners Carl and Leila Gregory operated CLC Ventures, Ltd. (“CLC”), which generated income and incurred expenses from boat chartering activities. The Gregorys reported CLC’s activities on Schedule C for each tax year. The IRS audited the Gregorys’ tax returns and issued a Notifce of Defiency, assessing deficiencies and certain accuracy-related penalties. The IRS determined that the CLC activities lacked a profit motive and recharacterized (1) the Schedule C income as non-Schedule C “other income,” and (2) the Schedule C expenses as miscellaneous itemized deductions to the extent allowable under Section 183 (with certain exceptions).
Avoiding IRS Audits
Just 0.45 percent of taxpayers were audited in fiscal year 2019. Still, with taxes becoming more complicated every year, there is an even greater possibility of confusion turning into a tax mistake and an IRS audit. Avoiding “red flags” like the ones listed below could help.
Red Flags That Trigger IRS Audits
- Claiming Business Losses Year After Year
When you operate a business and file Schedule C, the IRS assumes you operate that business to make a profit. Claiming losses year after year without any profit raises a red flag with the IRS.
- Failing to Report Form 1099 Income
Resist the temptation to underreport your income if you are self-employed or have a second job. The IRS receives the same 1099 forms that you do, and even if you didn’t receive a Form 1099 when you think you should have, you can’t be sure the IRS didn’t either. If the IRS finds a mismatch, you are sure to hear about it.
The IRS examines or audits tax returns to verify that what the taxpayer reported is correct. This doesn’t mean that the taxpayer has made an error or been dishonest. In fact, some examinations result in a refund to the taxpayer or acceptance of the return without change.
There are various reasons the IRS may telephone or visit a taxpayer at home during an audit, but at that point the taxpayer would be well aware of the audit.
- IRS employees conducting audits may call taxpayers, but not without having first attempted to notify them by mail. After mailing an official notification of an audit, an auditor/tax examiner may call to discuss items pertaining to the audit. We may visit the taxpayer’s home or business without notification to the taxpayer if attempts to communicate with the taxpayer in other ways, such as letters or phone calls, are not successful. An audit may include an interview with the taxpayer or his or her Power of Attorney, if one is appointed, and sometimes include a tour of the taxpayer’s business operation.
The Commissioner of the Internal Revenue Service, Charles Rettig, testified before the Senate Finance Committee. His message was a clear one: He is an enforcement-minded commissioner and “the IRS is committed to pursuing those who . . . intentionally evade their tax obligations.” Mr. Rettig did not mince words. His IRS will “aggressively pursue non-compliant taxpayers . . . [with] visible civil and criminal enforcement efforts.” But the message, though a stern one, is also one of fairness: Honest taxpayers need to believe—to feel confident—that others are paying their fair share, whether voluntarily or through enforcement efforts.
The first reaction by most taxpayers when they find out they are being audited by the IRS is crippling fear. An audit occurs when the IRS has reason to believe that the tax you paid is not what should have been collected. The IRS wants to investigate how you calculated your tax due for the year. If you have received a letter in the mail from the IRS, take a deep breath and don’t immediately panic. You might not even have to meet in person with the IRS, depending on the type of audit.
There are three main categories of IRS audits: a correspondence audit, a field audit, and an office audit. A correspondence audit happens via the mail. The field audit happens in person in your place of work or home. An office audit happens in person at your local IRS office. Read on to learn more about each of these three different types of audits.
If you owe the IRS a substantial amount, be sure not to ignore it. Review options such as installment agreements, extensions, or personal loans, and always seek legal advice from a professional tax attorney.
While you may want to put off dealing with tax debt and that sinking feeling that you owe the IRS, not handling it will likely lead to additional penalties, interest, and other major consequences. If you can’t pay the debt by its due date, you still need to file a return on Tax Day and/or have your tax preparer file a six-month extension. This will give you more time to seek professional help and discover what options you have to settle the debt. To avoid this and other penalties, carefully review the action steps below.
The percentage of tax returns being audited each year has steadily declined, due in part to dwindling government resources. Still, if you’ve been notified of a pending audit, those percentages don’t mean much. The only thing that matters is the situation that you’re now in. There are two kinds of audits; in person and by mail. It’s disconcerting to receive an audit notification, no matter what kind. If you find yourself in this situation, here’s how to handle it.
Notify Your Accountant
The first phone call you should make is to your tax accountant. Your accountant will be an invaluable resource as the audit progresses, so you need to give them the pertinent date(s) of the audit to ensure the accountant’s availability. In addition, numerous financial documents will need to be provided to the auditor, and your accountant will have many of these records. They’ll need some time to get everything together and organized. The sooner you notify your accountant, the better prepared they—and you—can be.
Things Preparers Keep In Mind To Avoid An IRS Audit
Competition among tax preparers is fierce, but tax professionals must be careful not to run afoul of IRS regulations in their quest to grow their business.
The IRS is particularly interested in investigating tax preparer fraud because it affects so many returns. If the IRS shuts down a single corrupt tax preparer, it could prevent hundreds of fraudulent returns from being prepared each tax season.
Most tax preparers, however, are honest professionals who want to avoid accidentally creating a problem with the IRS. The following tips can help increase the odds you’ll have a successful tax season without receiving any unwanted mail from the IRS:
Contrary to popular belief, there is nothing inherently threatening or sinister about an IRS audit. During the audit, the agency will simply double-check your numbers to ensure that there are no discrepancies in your tax returns. Therefore, if you are truthful and conscientious, you do not have to worry.
At times audits are completely random; however, the IRS usually selects taxpayers on the basis of suspicious or unscrupulous activity. As a rule of thumb, it is better to avoid subterfuge. If you are worried about being audited by the IRS this tax season, the following are some red flags that may land you in the hot seat.
Errors and Omissions
It is true that mistakes often happen in life. That being said, when you are filing your tax return, you must play close attention to all details, and be meticulous. It is likely that if you make simple mathematical errors, they will be noticed by the agency, which can lead to your tax return being audited.