IRS Audits to Resume on July 15June 23, 2020
High income individuals, private foundations, high net worth non-filers, non-filing tax preparers and licensed professionals involved with conservation easements or micro-captives all have something to “look forward to” while navigating a return to the workplace following the pandemic shutdown — increased IRS audit activity. The IRS plans to start these new audit initiatives, some of which are continuations or expansions of previous or ongoing audit programs, after its People First Initiative expires on July 15. (See IR-2020-59, March 25, 2020).
The high income audits will be linked to a related entity audit such as a pass-through or foundation audit. The IRS says it has identified over 1,000 private foundations with global wealth tentacles making them attractive targets for a joint high wealth audit. And with mandatory reporting for certain conservation easements and micro-captive transactions, the IRS has been able to mine data that it can use to expand audits of high income individuals.
A Treasury Inspector General for Tax Administration (TIGTA) report issued May 29, 2020 showed that 9% of the $441 billion tax gap each year is attributable to high net worth and high income non-filers. In response, the IRS is initiating the high net worth non-filer program, a project of the new Anti-Fraud Office, which will also be looking into promoter fraud issues.
IRS promoter Investigations Coordinator Brendan O’Dell recently told attendees of the NYU School of Professional Studies that the IRS is now considering promoter audits of what it considers enablers of tax shelter activities to include attorneys, accountants and appraisers. Some of that had already started before the shutdown. Mr. O’Dell just issued a reminder.
Finally, non-filing tax return preparers beware. TIGTA recently reported that 10,495 return preparers who prepared more than 2 million tax returns during 2016 did not file a personal tax return to report their income and the IRS has isolated the top 100 violators to track down first. Some of those cases will be sent to collections, some to revenue agents and some to the Criminal Investigation Division. Preparers who are not in compliance should file their returns as soon as possible. Any preparers with clients ripe for an IRS audit under the new initiatives should start reviewing the files to correct any filing problems. The intentional failure to file a tax return is a crime. Taxpayers can try making a voluntary disclosure. A properly made voluntary disclosure can help ensure that the case is handled by the civil division but the IRS does not have to accept any voluntary disclosures. Taxpayers must make the voluntary disclosure before the IRS begins the audit to qualify for voluntary relief.
Borrowing a line from Bette Davis in “All About Eve,” starting July 15, “fasten your seatbelts, it’s going to be a bumpy ride.”
Vivian Hoard and Ashley Swan are members of the firm's Tax Controversy & Litigation Team.