As with many different jobs and industries, COVID-19 caused significant closures at the Internal Revenue Service (IRS), with service centers and offices nationwide shutting down operations and sending employees home to work.
A March 25 announcement released by the IRS outlined the steps they were planning to take as part of the “People First Initiative” to help those facing challenges as a result of COVID-19. It included:
- Extending tax-filing deadlines
- Postponing payments for Installment Agreements and Offers in Compromise
- Limiting enforcement actions
- Suspending field collection activities
- Suspending new systemic liens and levies
- Stopping new delinquent accounts from being forwarded to private collection agencies
- Postponing any new field, office or correspondence audits
The announcement specified that IRS activities would be limited or suspended through July 15, 2020. Now the IRS has reopened in some capacities and will resume some normal activities. For taxpayers and corporations, it’s important to understand what that means for audits, collections, investigations and more, as well as what the focus and priorities will be in the coming months.
Focus: High-Net-Worth Taxpayer Audits
The IRS said they would resume audits for high-net-worth individuals starting July 15, with the intent of auditing hundreds of returns by the end of the third quarter. While their examination and audit methods may be slightly different — with limited in-person and face-to-face interactions — they still intend to thoroughly examine entities such as partnerships, pass-through entities, S corporations, trusts and international financial activities.
This follows the June announcement that the Large Business and International (LB&I) Division would make high-net-worth individuals a focus this year for “Wealth Squad” investigations.
What it means for taxpayers: If you fall into the category of a high-net-worth individual for tax purposes, you need to recognize that the IRS has a stated goal of uncovering sophisticated planning tools and aggressive tax vehicles used for purposes of reducing tax liability.
The audits are conducted by a team with specialized knowledge of foreign and domestic financial structures and are comprehensive, even if you have not filed a tax return yet for the year. It’s important to understand and utilize effective (and legal) tax-planning tools that won’t put you at risk.
Focus: Fraud Enforcement
In mid-March, the IRS formed a new Fraud Enforcement Office, appointing an experienced criminal investigator to lead the team and strengthen the link between criminal and civil IRS agents. While much of their work was likely halted in the wake of COVID-19, there is an expectation that the new office will provide a boost for fraud detection and deterrent efforts.
What it means for taxpayers: There will likely be an increase in the number of fraud referrals, as well as more coordination between civil and criminal divisions, which may result in more civil penalties along with the potential for criminal charges.
Get the Tax Help You Need
As with any situation involving the IRS, the most important preventive action you can take is to have knowledgeable tax advisors to sort through complex financial and legal tax issues. In part two of this blog post, we’ll cover a few more areas the IRS intends to focus on in the coming months. In the meantime, contact Cantley Dietrich for help if you think you might be the target of increased IRS enforcement, audits or investigations.