IRS Audit Priorities After COVID-19 Break (Part 2)

In part one of this blog post, we covered two things that the IRS is focusing on now that they are back after a break during the COVID-19 pandemic. Between April 1 and July 15, they announced the People First Initiative, which would halt many of their normal audit, investigation and enforcement activities in an effort to protect their employees and help those affected by COVID-19. Once the break ended in mid-July, the IRS stepped up their efforts in these areas once again.

IRS audit priorities

Focus: Abusive Tax Preparers and Promoters

The IRS hired a new coordinator to oversee investigations of promoters pushing aggressive (and unlawful) tax arrangements. They plan to monitor a wide variety of civil investigations with the goal of ensuring that tax promoters known to engage in questionable tactics remain in compliance with injunctions and other enforcement.

What it means for taxpayers: You hire a tax attorney or advisor for their expertise, and most taxpayers—including businesses and high-net-worth individuals — don’t have a deep knowledge of which tax strategies are illegal. It’s important to vet a tax advisor before you hire them, checking for a history of abusive or illegal activity. Fortunately, there are still many effective tax strategies you can employ to protect your earnings, and working with a reputable advisor or firm will help you avoid the negative legal consequences.

Focus: Syndicated Conservative Easements

Earlier this year, the IRS extended an offer to settle cases involving syndicated conservative easements after announcing in 2016 that it would be looking more closely at these transactions. The IRS discovered that taxpayers were using conservative easement donations to claim deductions for more than the actual value of donated property.

What it means for taxpayers: After several years of auditing and litigating, the IRS has extended a settlement offer to conservative easement cases pending litigation. They are strongly encouraging taxpayers to accept the settlement terms, and have committed to pursue further litigation (including a trial) for those who do not. If you’ve invested in a syndicated conservative easement, talk to your tax attorney about next steps.

Focus: Fraudulent Micro-Captive Insurance Tax Shelters

The IRS has included micro-captive insurance companies on the Dirty Dozen list of tax scams for several years in a row, and will continue to pursue them aggressively in 2020 and beyond. They announced the creation of 12 new investigative teams to pursue audits and litigation when they deem a captive insurance company (CIC) to be an abusive tax vehicle.

What it means for taxpayers: If you have an 831(b) CIC as part of your investment strategy, it’s important to talk to a knowledgeable and trustworthy tax attorney. CICs can be useful for risk management and mitigation when used appropriately, so it’s best to have yours reviewed before the IRS contacts you for an audit.

Find a Trusted Tax Advisor

The IRS remains committed to identifying, auditing and litigating abusive tax shelters or unethical tax practices. High-net-worth individuals and businesses should find a trustworthy tax attorney to help them identify appropriate, legal and ethical tax strategies. Talk to Cantley Dietrich today to learn more.