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Update on IRS Civil Enforcement Priorities

By Joel N. Crouch on Januray 20, 2020

Last week, I participated in a conference call with IRS officials from Examination and Collection who were discussing the IRS’ 2020 enforcement priorities. Here are the take-aways from the call:

  1. Both IRS Examination and Collection have made significant hires in the last year. These are the first hires in a number of years, so the number of examinations should go up.  However, the number of Revenue Agents and Revenue Officers is still far below the numbers from 10 years ago.
  2. Due to lack of manpower and resources, the IRS continues to search for better ways to enforce the tax laws, including using data analytics to select tax returns for examination, soft letters, voluntary disclosures and settlement initiatives.  The use of data analytics to select returns should result in a decrease in the number of no-change audits and an increase in the revenue-per-examination rate. 
  3. Data analytics are also being used to determine high-risk return preparers.  It is a better use of resources to contact one return preparer with 100 problem returns than to contact each taxpayer.
  4. Using soft letters and other tools to help taxpayers and tax professionals self-correct.
  5. Areas of focus:
    1. Abusive micro-captive transactions and abusive conservation easement transactions. Substantial resources are being allocated to abusive micro-captive transactions and abusive syndicated conservation easement transactions.  The amounts at issue in these transactions are very high and the IRS has had a series of court wins in cases involving these transactions.  As a result, the IRS will continue to pursue them.  The IRS will be issuing a press release soon regarding the micro-captive settlement offer it made last year.
    2. Payroll Taxes.  Both Examination and Collection have made payroll taxes a priority using an early taxpayer contact initiative with the intent to contact taxpayers before a payroll tax issue becomes too big.  The IRS had a great deal of success with its Revenue Agent Compliance Sweeps last year and intends to make more sweeps this year.  Teams of 8-15 IRS agents descend on a geographic area contacting taxpayers selected by data analytics.  Their tactics include unannounced visits and arranged meetings.  The goal is to address issues before they become too big to resolve easily.  In addition, there is still an initiative from both the civil and criminal sides to pursue egregious payroll noncompliant taxpayers, including taxpayers who are pyramiding payroll taxes in one company or multiple companies.  The focus is on taxpayers who don’t pay their payroll taxes, but continue to spend money on lavish lifestyles.
    3. Non-Filers.  The IRS has a new non-filer executive steering committee intended to study ways to address delinquent taxpayers.  The use of soft letters will continue and the IRS will have a program targeting high-income taxpayers who do not file tax returns.
    4. Fraud Initiative.  The IRS Commissioner recognizes the need for a vigorous fraud referral program.  There is a continuing use of fraud technical advisers and quarterly meetings between IRS Examination and Collection representatives and representatives of the Department of Justice and IRS Criminal Investigation.  The purpose of the meetings is to discuss opportunities to make more civil and criminal fraud referrals.  This is another area where the IRS is using data analytics to select returns for examination.
    5. Cryptocurrencies.  The IRS is continuing to study the treatment of cryptocurrencies and more guidance will be coming.  IRS Collection has already seized one cryptocurrency wallet from a delinquent taxpayer.
  6. There are significant IT changes being made in examination in anticipation of partnership examinations under the new partnership audit rules.  There are already a handful of partnership exams being conducted under the new regime.

If you have any questions about this or any other tax-related matter, please feel free to contact me at (214) 749-2456 or jcrouch@meadowscollier.com.