Tax laws

How does the IRS enforce the country’s tax laws for the benefit of all taxpayers? | CPA and Foodman advisors


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On December 17, 2020, the IRS released a document titled “Closer Look”. He explains the IRS’s aspiration to balance the burden on the taxpayer with the potential benefit of its compliance effort when deciding which compliance tool to use. The IRS’s goal is to minimize the burden on taxpayers while encouraging voluntary compliance using the most appropriate resources.

IRS Employee Compliance Tools

  1. Tax inspectors and tax compliance officers perform audits and related reviews of less complex tax legislation and taxpayer account issues.
  2. Revenue officers verify more complex tax returns and ensure payment of taxes owed.
  3. Revenue officers work with the collection of unpaid taxes owed. This includes cases of taxpayers who failed to file the required tax returns.
  4. Special agents in charge of criminal investigations investigate criminal tax cases and other financial crimes.

IRS Compliance Efforts Not Requiring Review of Taxpayer’s “Books and Records”

  • Automated Underreporting Program (AUR):
    • The IRS’s “computer systems” match the income a taxpayer reports on a tax return with information returns provided to the IRS by third parties. For example, if a taxpayer reports less income on Form 1040 than their employer reports on Form W-2, the AUR program will detect it. An IRS tax inspector will then send a letter to a taxpayer advising them of the difference and work with them to resolve the issue.
  • Mathematical error messages by mail:
    • The IRS will send math error notices to taxpayers who appear to be doing a math or clerical error on their tax returns. There are many tax forms that require you to add two lines or subtract from one line to another. If these amounts are incorrectly calculated, it could ultimately affect the amount of tax taxpayers owe or the amount of the refund they should receive. Other examples include failing to use the correct row and column of the tax table for the claim status claimed and the amount of taxable income shown, failing to attach all the forms and schedules required to justify the claims. missing or incorrect entries and taxpayer identification numbers. When this happens, the IRS will send the affected taxpayers a letter asking them to resolve the problem (s).
  • Automated Return Replacement Program (ASFR):
    • This program enforces tax compliance for individual taxpayers who have not filed tax returns, but whose disposable income information shared with the IRS indicates an income tax. The IRS will send notices to these taxpayers alerting them to their potential tax liability. The IRS can file a “replacement return” for a taxpayer who does not file. This statement might not include credit for any deductions and exemptions to which the taxpayer might be entitled. Therefore, it is always in the interest of the taxpayer to file his own tax return to take advantage of the exemptions, credits and deductions to which he is entitled.
  • Compliance review:
    • Typically, compliance checks are carried out by tax auditors. This is a “review” to determine whether a taxpayer is meeting information reporting and record keeping requirements. To do this, the IRS will send the taxpayer a letter asking them a few questions. In certain circumstances, the IRS might decide that the results of a compliance check could justify initiating a taxpayer review.

What if the IRS decides to examine the books and records?

An IRS review or audit requires an IRS review of a taxpayer’s books and records. An IRS review of books and records requires more time than compliance actions in a “no books and records” review. The duration can vary from a few months to several years depending on the question (s) examined. Reviews are conducted by tax auditors, tax audit officers or revenue officers. They understand:

  • correspondence exams: for additional information on limited questions about a taxpayer’s return. They are usually carried out by tax auditors and / or tax compliance officers.
  • in-person exams: this involves examining one or more years of a taxpayer’s tax returns in conjunction with his books and records. The taxpayer or his representative goes to an IRS office or a taxpayer’s office to interview him or his employees or representatives (such as accountants and lawyers) to gather more information. These types of reviews are often performed by tax compliance officers (office reviews) or revenue officers (field reviews).

IRS Sends “Sweet Letters”

The IRS will send a “soft letter” to a taxpayer to give them the opportunity to resolve an issue that could avoid the need for further contact or review with the IRS. If a taxpayer does not respond, or if the explanation is inadequate, the IRS could initiate a review.

IRS will use “tougher tools” through its criminal investigation function to deter a taxpayer who refuses to comply and intentionally avoids paying his tax

The IRS Criminal Investigation Function (IRS-CI) investigates taxpayers who intentionally fail to pay their taxes and / or are suspected of fraud, money laundering, or other prohibited behavior. If the IRS-CI determines that a tax crime has been committed, it will refer the case for possible prosecution to the United States Department of Justice.

And then there are the “high income taxpayers”

The IRS reports that it is continuing its commitment to review a higher percentage of returns filed by high-income taxpayers. Reviews of high income taxpayers are conducted in person by teams of tax officers and take years to resolve. They involve many complex issues and the review of multiple tax years and returns of related entities (partnerships, trusts, narrow business interests, etc.) and individuals (business partners and others). Review teams are made up of well-trained and experienced tax officers with extensive accounting and investigative skills. For matters involving private foundations, international law and foreign tax, inheritance and gift tax, etc., they may include IRS attorneys and economists as well as subject matter experts.

“On behalf of the hard-working taxpayers who play by the rules and pay their fair share, it is the duty of dedicated IRS compliance employees to hold others to the same standards.”

This IRS philosophy signals that it’s best to come forward before the IRS finds you. There are options available to manifest. Choosing the right filing options is an essential task that should be done in consultation with the CPA assisting you and, depending on the facts and circumstances, with an attorney who specializes in the income tax controversy. If the IRS finds you, the options available to become compliant and negotiate a favorable deal with the IRS are reduced.

Start your action plan for compliance.

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