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The IRS on October 20 issued IR-2023-194 announcing several new initiatives leveraging Inflation Reduction Act (IRA) funding to increase its enforcement efforts focused on large corporations. This is in addition to previously announced initiatives centered on increasing compliance among high-income, high-wealth individuals and complex partnerships. As the IRS is ramping up its enforcement efforts, it continues to work to improve customer service and modernize core technology infrastructure.
See our Insights, IRS expands compliance efforts, seeks to improve taxpayer certainty and issue resolution and IRS shifting compliance focus onto high-income earners, partnerships, and large corporations, for more information.
Action item: The IRS is working to significantly increase enforcement activity involving large businesses and high-income taxpayers, while at the same time seeking to grow its workforce and train new employees. Taxpayers potentially affected by the agency’s expanded enforcement efforts should consider reviewing return filings to prepare audit-ready files in the event of possible IRS examinations.
Observation: Delivery of some of the service-related technology capabilities would improve how taxpayers work with the agency. While many of these efforts are in the beginning phases, they seem to be steps in the right direction and eventually should enhance taxpayer experiences.
The IRS announced that it is increasing compliance efforts directed at the US subsidiaries of foreign corporations that distribute goods in the United States. The agency believes that many of these foreign companies improperly use transfer pricing to report losses or exceedingly low margins. The IRS plans to send compliance alerts to approximately 150 US subsidiaries of large foreign corporations to reiterate their US tax obligations and incentivize self-correction.
The IRS’s Large Business & International (LB&I) Division’s LCC program uses data analytics to identify potentially noncompliant large corporate taxpayers for audit. The LCC program, which replaced LB&I’s continuous audit program several years ago, includes complex corporate taxpayers with average assets of more than $24 billion and average taxable income of approximately $526 million per year. LB&I plans to use new accountants who will join the agency in 2024 to expand the LCC program by using a combination of artificial intelligence and cross-border and corporate subject matter expertise to select large corporate taxpayers for 60 new audits, a significant increase from the current year.
The IRS reports receiving hundreds of claims collectively seeking more than $6 billion in refunds following the 2017 repeal of the domestic production activities deduction. The agency launched a campaign to address noncompliance and review high-risk claims around the deduction. The IRS believes that a recent Tenth Circuit decision in the agency’s favor will have far-reaching benefits for its ongoing efforts in this space.
The IRS announced that, in the coming fiscal year, dozens of revenue agents will focus on pursuing high-income, high-wealth individuals who either have not filed their taxes or have failed to pay recognized tax debt. The IRS previously announced that it had begun contacting about 1,600 taxpayers with more than $1 million in income and more than $250,000 in recognized tax debt. The agency announced that it already has collected $122 million in 100 of these 1,600 cases.
The IRS announced that it is hosting community assistance visits in underserved and rural communities where it will set up temporary Taxpayer Assistance Centers to give taxpayers from hard-to-reach areas opportunities to meet with IRS customer service representatives. The agency reports that it has opened or reopened 50 Taxpayer Assistance Centers since the IRA was enacted and hired 745 employees to staff these centers, representing a 31% increase in staffing, compared to fiscal year 2022.
The Strategic Operating Plan details how, within the next five years, the IRS plans for taxpayers to be able to securely file all documents and respond to all notices online and securely access and download their data and account history. The IRS announced that it is working toward this goal with (1) the launch of business tax accounts, (2) the expansion of the agency’s document upload tool to accept responses to most notices and letters, and (3) the launch of digital mobile-adaptive forms.
The IRS announced that it has launched the first phase of business tax accounts intended to allow business taxpayers to (1) check their tax payment history, (2) make payments, (3) view notices, (4) authorize powers of attorney, and (5) conduct other business with the IRS. This initial phase is intended to allow unincorporated sole proprietors who have an active employer identification number to set up a business account where they can view their business profile and manage authorized users. The IRS plans for future improvements to enable taxpayers to use their business tax accounts to (1) view letters or notices, (2) schedule or cancel tax payments, and (3) store bank account information.
The IRS announced that it has received more than 32,000 responses to notices via the agency’s digital upload tool. Prior to the 2023 filing season, taxpayers had to mail their responses to notices. Beginning in the 2023 filing season, taxpayers were able to respond online to 10 of the most common notices for credits.
The IRS announced that it has launched the first three mobile-friendly forms that taxpayers can complete and submit electronically on their mobile devices. The three forms are (1) Form 14039, Identity Theft Affidavit, (2) Form 14242, Reporting Abusive Tax Promotions and/or Preparers, and (3) Form 15109, Request for Tax Deferment. The IRS plans to launch a fourth form, Form 13909, Tax-Exempt Organization Complaint, later this fall and at least 20 of the most-used tax forms in early 2024.
The IRS reports that it continues to provide enhanced capabilities for individual accounts. According to the agency, taxpayers now can validate their bank accounts and save multiple accounts, eliminating the need to re-enter bank account information every time they make a payment. This follows the agency’s earlier launch of virtual assistance and live chat for individual taxpayers.
The IRS reports that it continues to provide enhanced capabilities of online accounts for tax professionals to help them manage their active client authorizations on file with the Centralized Authorization File (CAF) database, which stores information on individuals authorized to act on a taxpayer’s behalf. Other planned enhancements are intended to allow tax professionals to view their client’s tax information, including balance due amounts, and use Tax Pro Account to withdraw from active authorizations online in real time.
The IRS reports that it continues to make significant process scanning and e-filing paper returns, scanning over one million forms during the 2023 calendar year. The agency’s digitization of returns is intended to (1) reduce errors, (2) speed up processing, (3) reduce storage costs, and (4) enable more resources to focus on customer service. The extraction of data from digitized returns is intended to enable IRS customer service employees to answer taxpayer questions and resolve issues more quickly and accurately.
Global and US Tax Knowledge Management Leader, PwC US