IRS to Increase Tax Audits for Wealthy Individuals and Partnerships

 Posted on May 11,2021 in Tax Audits

The Internal Revenue Service (IRS) regularly conducts tax audits of individual taxpayers and businesses. During an audit, it will seek to collect taxes that were underpaid due to misreported income, improper deductions, or other issues, as well as any applicable penalties. Under the administration of President Joe Biden, these efforts may increase, and the IRS will be looking to conduct more audits of individuals who earn high incomes or own significant assets, as well as large partnerships and corporations.

Increased IRS Budget and Focus on Closing the Tax Gap

President Biden recently announced the American Families Plan, a proposal that would increase infrastructure spending and provide aid to families with middle to low incomes. This proposal also included an increase in the IRS’s budget by $80 billion over 10 years. This increase would allow the IRS to conduct more audits and narrow the “tax gap,” or the difference between what U.S. taxpayers owe and what is actually collected. Experts believe that the tax gap is close to $1 trillion per year.

This proposal came on the heels of a report by the IRS and other economists which stated that taxpayers with income levels in the top 1% do not report 21% of the income they earn. This results in around $175 billion of taxes that go unpaid each year. In addition, the number of audits of taxpayers who earn at least $1 million per year has fallen by 80% over the past 10 years, making it less likely that the IRS will be able to collect the taxes owed by these taxpayers. Increased audit and collection efforts aimed at this top 1% may assist in narrowing the tax gap without additional tax increases.

With an increased focus on high-net-worth individuals, the IRS will be looking more closely at these taxpayers’ tax returns. It also plans to increase audits for large partnerships, including hedge funds, closely-held businesses, and interests associated with estate planning. The IRS will examine information obtained from financial institutions and foreign tax authorities when addressing foreign accounts, investments, and income. The IRS has also begun to place more scrutiny on transactions involving virtual currencies, and it will be looking to ensure that taxpayers pay any applicable income taxes or capital gains taxes when receiving, selling, or exchanging cryptocurrency.

Contact a San Jose, CA Tax Audit Lawyer

If you are in the top 1% of income earners, or if you are a partner in a large business, you will need to be prepared for increased attention from the IRS. During a tax audit, you should be sure to understand your rights and the steps you can take to minimize taxes that may be owed or penalties that may apply to you. John D. Teter Law Offices can provide you with legal representation during a tax audit, and we will work to protect your financial interests and help you resolve tax-related issues successfully. Contact our San Jose tax law attorney at 408-866-1810 to get the legal help you need.

Sources:

https://www.marketwatch.com/story/biden-calls-for-increasing-the-irss-budget-by-67-can-it-really-raise-700-billion-11619643644

https://federalnewsnetwork.com/agency-oversight/2021/04/biden-pushes-bigger-budget-for-irs-to-collect-700b-in-taxes-already-owed/

https://www.businessinsider.com/irs-tax-evasion-high-income-one-percent-households-new-research-2021-3