Plan of attack
The “goal is to improve return selection, identify issues representing a risk of non-compliance, and make the greatest use of limited resources,” the IRS said in a statement. Groups of specially trained experts will focus on these tax issues wherever they pop up. Some of the campaigns will be very narrow—looking at energy tax credits, for example, or the way that housing developers do their accounting.
Other campaigns could end up netting a wide variety of well-off taxpayers. One looks at “repatriation,” when taxpayers move money from abroad back to the U.S. The IRS is also focusing on so-called “basket options,” transactions structured in a way to reduce tax bills. The IRS said it will address some issues by first sending out letters warning taxpayers that their maneuvers may get extra scrutiny. For other campaigns, the agency said its main weapon will be full-blown audits.
Tax experts are scrambling to interpret the IRS’s public statements and get taxpayers prepared. “My clients are noting what these issues are,” Estrem said. “To the extent they have these issues, they’re getting ready for an IRS inquiry.” Big companies and the ultra-wealthy should be prepared for “more invasive and larger” audits than they’ve seen in the past, she added. “The IRS,“ she said, “is upping its game.”
The agency’s new strategy could end up forcing taxpayers to be less creative about how they lower their tax bills. But any federal revenue gains from such defensive conservatism could be undercut by the overall drop in audits. Last year, according to preliminary data, the IRS audited just 0.7 percent of the 147 million individual income tax returns filed. Audits fell for all income groups.
It’s not yet clear how the new Republican administration could change the IRS’s plans. Tax collection is supposed to be immune from politics. But President Donald Trump is free to replace IRS Commissioner John Koskinen, whose term expires in November. Koskinen’s time in office has been marked by fierce criticism from Congressional Republicans, some of whom tried to impeach him for allegedly impeding their probe into whether conservative non-profits were improperly targeted by the agency.
When it comes to tax collection under Trump, who said he’s been the subject of many an audit, “it’s unclear what the priorities might be,” said Indiana University professor and economist Bradley Heim. “You have to wait and see who he appoints.”
This article was provided by Bloomberg News.