Expect new aggressive IRS targeted enforcement next year.

For years, the government has known about the widening tax gap, which reports uncollected taxes among US taxpayers. However, typically, the government does not do much to address the increasing loss of tax revenue.

It appears that is about to change.

President Biden is about to announce a major new increase in IRS tax enforcement funding to tackle the tax gap among high earner taxpayers.  President Biden, in an effort to pay for his ambitious economic agenda, is expected to propose giving the Internal Revenue Service an extra $80 billion and more authority over the next 10 years to help crackdown on tax evasion by high-earners and large corporations.

The IRS in recent years has been increasing its data analytics budget and staff, which will enable them to data-mine and intelligently scrutinize tax returns. As a result, the IRS is smarter than ever. In addition, current IRS Commissioner Chuck Rettig, is a former practicing tax attorney (with a similar tax practice as Patel Law Offices) who is well-informed about the intricacies of tax law. Past IRS commissioners have been administrators and bureaucrats and not private client-serving tax practitioners.  In other words, he is an effective private sector professional who knows where the skeletons may be hidden and the uncollected tax money can be efficiently and quickly discovered. For example, over the past few years, the IRS has effectively deployed “soft letters” (which most people interpret as scary warning letters) to identify and warn targeted taxpayers of certain problems with their returns to increase voluntary tax compliance via IRS voluntary disclosure programs.

As a result, we anticipate increased enforcement next year against high-income taxpayers. This year, we recommend high-income taxpayers go on an extension to file to give extra attention and scrutinize this year’s tax return.  Typically, IRS algorithms (ie, the IRS computers with fancy programming to identify and flag questionable taxable income and deductions) review returns based on year-to-year comparisons, which makes prior tax years more important in future years with increased tax enforcement.

In fact, I recommend taxpayers get independent tax legal counsel to review complex tax returns (beyond the regular tax preparer). To schedule a free tax planning strategy session book an appointment online.

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