IRS: The Tax Consequences Of Online Crowdfunding

FS-2024-28 (Aug. 2024), IRS Reminds Taxpayers of Important Tax Guidelines Involving Contributions and Distributions from Online Crowdfunding:

Crowdfunding distributions may be includible in the gross income of the person receiving them depending on the facts and circumstances. The crowdfunding website or its payment processor may be required to report distributions of money raised if the amount distributed meets certain reporting thresholds.

Here are some important basics to keep in mind.

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IRS Celebrates National Whistleblower Day: $1.2 Billion Awards, $7 Billion Paid By Non-Compliant Taxpayers

IR-2024-199, IRS Whistleblower Office Celebrates National Whistleblower Day; Over $7 Billion in Collected Proceeds Thanks to Whistleblowers (July 29, 2024):

In anticipation of National Whistleblower Appreciation Day on July 30, the Internal Revenue Service Whistleblower Office today recognized the important role whistleblowers play in supporting the nation’s tax administration.

Since issuing its first award in 2007 through June 2024, the IRS has paid over $1.2 billion in awards based on the successful collection of $7 billion from non-compliant taxpayers. ...

In Fiscal Year 2023, the IRS paid awards totaling $88.8 million based on whistleblower information attributable to tax and other amounts collected of $338 million. In Fiscal Year 2023, the Whistleblower Office established 16,932 award claims, an increase of 44% compared to the average of the prior four years. ...

Actionable claims contain specific, timely and credible information. A whistleblower may qualify for an award when use of the whistleblower’s information results in proceeds collected. The awards paid to whistleblowers generally range between 15 and 30% of the proceeds collected and attributable to their information.

IRS Whistleblower Office, FY 2023 Annual Report:

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WSJ: Increased IRS Audit Rate Of Wealthy Taxpayers Reduced Efficiency By 93%

Wall Street Journal Editorial, The IRS Has a High-Earner Delusion:

Unlike bank robbers, IRS auditors tend to look where the money isn’t. That’s what happened after the agency started scrutinizing more tax returns from the wealthiest Americans. A new report says increased targeting of these taxpayers was hugely ineffective [The IRS Ceased Compliance With the $10 Million Taxpayer Treasury Directive in Favor of an Overall Focus on High-Income Taxpayer Noncompliance (2024-300-028) (June 20, 2024)].

The policy, launched in 2020 by former Treasury Secretary Steven Mnuchin, required the IRS to audit 8% of taxpayers each year who earned more than $10 million. To hit that quota, the agency started examining returns with fewer irregularities. The efficiency drop was steep, according to the Treasury Inspector General for Tax Administration, or Tigta, which recently reviewed the results.

The average dollars assessed per return above $10 million “was nearly six times more productive prior to the 2020 Treasury Directive,” meaning the average examination recovered six times as much in unpaid taxes. Or to put it in terms of IRS productivity, after the policy change the money that auditors assessed per hour from this income group dropped 93%. ...

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Treasury Department Seeks To Hire Deputy Tax Legislative Counsel ($147,649 - $221,900)

The U.S. Treasury Department is looking to hire a Deputy Tax Legislative Counsel (application deadline: July 29, 2024):

Summary
This position serves as Deputy Tax Legislative Counsel in the Office of the Tax Legislative Counsel (the Office). The Tax Legislative Counsel is the legal adviser on domestic, non-benefits tax legislation and guidance projects and assists the Assistant Secretary (Tax Policy) and the Secretary in providing leadership for the Department of the Treasury to assure consistency in tax policy and an integrated legislative program on tax matters.

Duties
In addition to the general duties as a senior attorney in the Office, the Deputy Tax Legislative Counsel has particular responsibility for the following principal duties:

Administrative Guidance Development:

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TIGTA: Occupancy Rate At Most IRS Buildings Is Less Than 50% (Washington, D.C. Is Lowest)

Treasury Inspector General for Tax Administration, The IRS Has Reduced Its Overall Space Footprint; However, a Significant Amount of Unneeded Office Space Still Remains (2024-100-027) (June 4, 2024):

Since FY 2018, the IRS has reduced its overall space footprint by approximately 2 million rentable square feet, from 24.3 million to 22.3 million, which represents a reduction of approximately 8 percent. However, additional efforts to address long-term space planning are needed to increase efficient space allocation and realization of its associated cost savings. Specifically, the IRS lacks a long-term space reduction plan that clearly specifies the space reductions it expects to achieve annually beyond FY 2026, and that sufficiently decreases its unneeded office space by maximizing the space savings associated with current practices in remote work, telework, and workstation sharing/hoteling.

In FY 2023, more than one-half of IRS buildings had a workstation occupancy rate of 50 percent or less. In addition, the IRS has not implemented workstation sharing/hoteling for approximately 61 percent of its employees on frequent telework.

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National Taxpayer Advocate Delivers Report To Congress: 500,000 Identity Theft Case Backlog Takes 2 Years To Resolve, IRS Answers 31% Of Taxpayer Phone Calls

IR-2024-173 (June 26, 2024), National Taxpayer Advocate Issues Mid-Year Report to Congress; Highlights Filing Season Challenges and Focuses on Strategic Priorities:

National Taxpayer Advocate Erin M. Collins today released her statutorily mandated mid-year report to Congress. The report says the tax-return filing season generally ran smoothly this year, but it identifies delays in issuing refunds to identity theft victims, misleading telephone measures that lead to poor resource allocation decisions, and delays in processing Employee Retention Credit claims as key taxpayer challenges. The report also emphasizes the importance of technology upgrades as the IRS seeks to modernize its operations in the coming years.

New York Times, Rampant Identity Theft Is Taxing the I.R.S.:

Rampant identity theft has overwhelmed the Internal Revenue Service, resulting in a backlog of 500,000 unresolved fraud cases, leaving taxpayers without refunds and credits that they are due, the agency’s watchdog wrote in a report to Congress on Wednesday.

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Treasury Department Office Of Tax Legislative Counsel Seeks To Hire Attorneys

Office of Tax Legislative Counsel Attorney-Advisor Positions

Priority application deadline is July 15, 2024, though we evaluate candidates year-round.

Job Description: The Office of Tax Legislative Counsel (TLC) is part of the Department of the Treasury's Office of Tax Policy responsible for advising the Assistant Secretary for Tax Policy and senior Treasury officials in connection with the formulation of legislative and administrative proposals that further domestic tax policies. TLC consists of over 20 lawyers and tax policy advisors who share a commitment to serve the nation by advising on and reviewing domestic tax policy and legal matters. Attorney-advisors work in the Main Treasury Building located at 1500 Pennsylvania, Avenue, NW, Washington, DC. Partial telework is permitted. 

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IRS ‘Sincerely Apologizes To Ken Griffin And Thousands Of Other Taxpayers Whose Personal Information Was Leaked To The Press’

Following up on Tuesday's post, Hedge Fund Billionaire Ken Griffin And IRS Settle Lawsuit Over Tax Returns Leaked To ProPublica:

New York Times DealBook, The Taxman Apologizeth:

The Internal Revenue Service has offered a rare public apology for a data leak that revealed the tax return details of Ken Griffin, the billionaire investor, and thousands of other affluent taxpayers.

The statement appears to draw a line under a legal battle. Griffin, the Citadel founder, sued the government in 2022 to force the agency to acknowledge its mistakes and to improve data security. The sides settled, and the I.R.S. published its apology yesterday.

A recap: Charles Littlejohn, an I.R.S. contractor, obtained the tax details of Griffin and others, including Jeff Bezos and Elon Musk, and disclosed them to ProPublica, which published the findings in a series of articles. Littlejohn, who was also accused of leaking Donald Trump’s tax documents to The Times, was sentenced to five years in prison in January.

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Hedge Fund Billionaire Ken Griffin And IRS Settle Lawsuit Over Tax Returns Leaked To ProPublica

Bloomberg, Ken Griffin’s Data Leak Suit Against IRS Ends In Settlement:

The Internal Revenue Service agreed to settle a lawsuit brought by hedge fund manager Ken Griffin that accused the agency of failing to protect his confidential financial information from a contractor who stole his tax data and leaked it to ProPublica. ...

Griffin sued over a data breach that resulted in ProPublica’s revealing private data on some of the wealthiest US taxpayers. A former IRS contractor, Charles Littlejohn, pleaded guilty to stealing and leaking the tax returns of Griffin, former President Donald Trump, Elon Musk and other billionaires. He was sentenced on Jan. 29 to five years in prison.

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AI-Generated Tax Advice Is Not (Yet) Making the Grade

Taxpayer Advocate Service, Is AI Generated Tax Advice Making the Grade?:

AI is a rapidly evolving new technology, and may not be able to provide accurate answers to your complex tax questions. ...

Recently, some leading tax preparation companies have taken AI a step further by providing generative AI assistants, often referred to as AI chatbots, to answer a wide variety of tax-related questions. ...

Despite efforts to ensure accuracy, these AI assistants may encounter difficulties interpreting complex tax laws correctly or considering unique circumstances that could impact a taxpayer’s return. As a result, taxpayers should not solely rely on AI-generated tax advice.

A recent informal review by the Washington Post found that two of the leading tax preparation companies’ chatbots provided inaccurate or irrelevant responses up to 50 percent of the time when initially asked 16 complex tax questions. ...

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WSJ: The IRS Money Hole Gets Deeper

Wall Street Journal Editorial, The IRS Money Hole Gets Deeper:

The Internal Revenue Service can’t write its own checks, which means it has to ask Congress for funding like any other agency. But if lawmakers have been tracking its misspending, they’ll turn down the tax collectors’ new $104 billion budget request and demand an audit instead.

Commissioner Danny Werfel appeared before the House Appropriations Committee recently and told legislators that the IRS faces financial collapse. “Resources are limited,” he said, and the agency “will likely use them entirely before the funding expires.” In other words, the IRS doesn’t think the $60 billion bonus it received from Congress in 2022 is enough, though it is supposed to last through 2031.

The IRS has a brilliant solution for this cash burn: Add more to the pile. Instead of explaining where the money went, Mr. Werfel asked the House to look away and grant his team another massive funding boost, this time through 2034. The extended bonus he seeks would bring total supplementary funding to $104 billion over 10 years. ...

Missing from the IRS’s request was an accounting of how its last round of funding has been run down so quickly. The money it received in the 2022 Inflation Reduction Act (IRA) was meant to fund a strategic overhaul, but not much of the plan has been carried out. ...

[T]he agency ... howled in protest when House Republicans clawed back $20 billion from the original $80 billion Democrats gave the agency in the 2022 IRA. Despite his pleas, Mr. Werfel is making a strong case for stripping the remainder instead of adding another cent of additional cash.

ProPublica: Sports Team Owners Face New Tax Scrutiny From The IRS

ProPublica, Sports Team Owners Face New Scrutiny From IRS Over Tax Avoidance:

The IRS has launched a campaign to examine whether wealthy taxpayers are violating the law when using their ownership of sports teams to save large amounts in taxes.

The effort will focus on sports industry entities that are reporting “significant tax losses” to “determine if the income and deductions driving the losses” are lawful, according to the IRS announcement earlier this year. That announcement, which consisted of one sentence on a webpage devoted to compliance campaigns by the IRS division that focuses on large businesses, did not specify what kinds of abuses the agency will be looking for.

The initiative comes after ProPublica, drawing on leaked IRS data, revealed how billionaire team owners frequently report incomes for their teams that are vastly lower than their real-world earnings.

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WSJ: 63% Of IRS Audits Target Taxpayers Earnings Less Than $200,000, Not $400,000 Promised By President Biden

Wall Street Journal Editorial, IRS’s Most Wanted: The $200,000 Man:

The Internal Revenue Service got an audit of its own in time for Tax Day, and two irregularities jump out. President Biden’s plan to hire a new army of tax collectors is falling flat, and the agents already at work are targeting the middle class.

Those are two findings of the IRS’s watchdog, the Treasury Inspector General for Tax Administration (Tigta). The report examines IRS progress on mandates from the Biden Administration backed by tens of billions in new funding. The first supposed goal was to audit more ultrawealthy and fewer middle-class filers, but it’s not going so well.

By last December the IRS decided that it wouldn’t begin tracking its progress until later this year. That’s because the agency has been slow to shift its focus to high-income taxpayers, who make up a small share of total filings. Its April 2023 strategic plan pledged that future audits would disproportionately target individuals making at least $400,000, but “did not include specifics on how the IRS was going to ensure it met this commitment,” says Tigta.

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Genadek Presents Newly-Available Individual-Level U.S. Tax Data (1969-1994) Today At Georgetown

Katie Genadek (Colorado; Google Scholar) presents Newly-Available Individual-Level U.S. Tax Data from 1969-1994 (with J. Trent Alexander (Michigan; Google Scholar), David Bleckley (Michigan), Jonathan Fisher (Washington Center for Equitable Growth; Google Scholar), Susan Hautaniemi Leonard (Michigan; Google Scholar) & Aristotle Magganas (UCLA)) at Georgetown today as part of its Tax Law and Public Finance Workshop hosted by Satterthwaite and Dayanand Manoli: 

This paper describes a series of linkable individual-level data from late-twentieth century federal income tax returns. The full universe Internal Revenue Service (IRS) Form 1040 files from 1969, 1974, 1979, 1984, 1989, and 1994 were held at the Census Bureau since originally being deliv ered by the IRS shortly after each year’s tax returns were processed. The data were recently made usa ble for research, and they are now available for request through the Census Bureau’s restricted data re search program. This paper discusses the provenance and composition of the files, assesses the cover age and quality of the data, and discussed potential uses of the data for research.

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Dorothy Brown And Steven Dean Question Biden Administration's Commitment To Addressing Systemic Racial Bias In The Tax Code

Tax Notes, Treasury Accused of Stonewalling Equity Agenda:

Dorothy Brown of the Georgetown University Law Center, a proponent of Treasury collecting race statistics to address tax code inequalities, feels seen but not heard as a member of the department's Advisory Committee on Racial Equity.

Brown, author of The Whiteness of Wealth: How the Tax System Impoverishes Black Americans — And How We Can Fix It, was one of 24 individuals chosen as part of Treasury’s newly created group, known as TACRE, and was named co-chair of its Data and Equity Research Subcommittee.

“The structure actually made sense. Having four, five members in each subcommittee allowed us to get a lot done,” Brown said, adding that her subcommittee made two recommendations: for Treasury to address racial equity in its annual green book and for Treasury and the IRS to send data to the U.S. Census Bureau to publish a comprehensive report on tax and race.

While both proposals were approved by the overall committee in March 2023 and sent to Treasury Secretary Janet Yellen for consideration, there has yet to be a response.

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Inside The IRS Unit Taking On America’s Millionaires And Billionaires

International Consortium of Investigative Journalists, Inside the IRS Unit Taking on America’s Millionaires and Billionaires:

A pair of Internal Revenue Service agents are attempting to interview a billionaire they suspect of cheating on his taxes. But across the table from the agents is a formidable entourage of esteemed tax professionals hired to defend the billionaire. They include white-shoe attorneys — each of whom knows more about their own arcane corner of tax law than just about anyone on earth — along with highly specialized accountants and economists.

Neither of the two IRS agents has a law degree. Complex arguments from the billionaire’s entourage fly over their heads. The IRS agents are outmatched by a team whose combined years of experience in tax law and accounting exceed their own by over a century.

This stark example, laid out by former IRS officials in interviews with the International Consortium of Investigative Journalists, isn’t a hypothetical so much as a glimpse into the agency’s regular challenges in auditing the United States’ highest earners. These battles often come down to experience and expertise. The IRS has been losing, former officials said.

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NY Times: There’s A Tax Season Villain, And It’s Not The IRS

New York Times, There’s A Tax Season Villain, and It’s Not the I.R.S.:

It’s the most miserable time of the year: tax season.

Americans are about to spend millions of hours and billions of dollars filing their federal income taxes, and they are pretty sure they know who is responsible for their pain: The misanthropes at the Internal Revenue Service.

But we’re here to convince you that the I.R.S. is not the problem.

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NY Times: Former Contractor Who Leaked Trump’s Tax Returns Sentenced To 5 Years In Prison

New York Times, Former Contractor Who Leaked Trump’s Tax Returns Sentenced to 5 Years in Prison:

A former Internal Revenue Service contractor accused of leaking the tax documents of Donald J. Trump and other wealthy Americans was sentenced on Monday to five years in prison.

The former contractor, Charles Littlejohn, known as Chaz, worked for the tax agency from 2017 to 2021, when he stole the tax records of thousands of the country’s wealthiest people, including Mr. Trump, prosecutors said. Mr. Littlejohn then provided the information to The New York Times and ProPublica.

Prosecutors said his actions “appear to be unparalleled in the I.R.S.’s history.”

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2023 Tax Filing Season Opens Today As IRS Computer Snarl Could Impact Millions Of Taxpayers

The Messenger, IRS Computer Snarl Could Threaten Millions of Taxpayers as Filing Season Is About to Open:

A computer snarl has hit the Internal Revenue Service just as the filing season is set to open, with the agency saying Friday that some payroll providers, banks, mortgage companies and accountants have been unable to upload required tax documents.

The problem, a login issue with an upgraded IRS computer system, is affecting some companies that file forms used to report taxable income earned by independent contractors. It's also impacting banks issuing statements of interest income and retirement account distributions, corporations reporting dividends received by shareholders, and government agencies issuing tax refunds, the IRS said in an email midday Friday.

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Thomas: Improving The Tax System For Independent Contractors With Quarterly 1099s

Kathleen DeLaney Thomas (North Carolina; Google Scholar), Improving the Tax System for Independent Contractors: Quarterly 1099s, 182 Tax Notes 79 (Jan. 1, 2024):

In this article, Thomas proposes a new quarterly form sent to independent contractors that would inform them of their quarterly earnings and their obligation to remit estimated taxes on that income, easing the compliance burden on those taxpayers and helping decrease the tax gap.

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Lily Batchelder Returns To NYU After Serving Over 3 Years As Assistant Secretary For Tax Policy

NYU Law News, Lily Batchelder Returns to NYU Law After Serving as the Treasury Department’s Assistant Secretary for Tax Policy:

Lily Batchelder will return to NYU Law in Spring 2024 after serving as assistant secretary for tax policy at the US Department of the Treasury. Batchelder, who is the Robert C. Kopple Family Professor of Taxation at the Law School, was nominated to the Treasury post by President Joe Biden and confirmed by the US Senate in 2021 by a vote of 64-34.

As assistant secretary, Batchelder led Treasury’s Office of Tax Policy (OTP), which is responsible for developing and implementing the federal government’s tax policies and programs, negotiating tax treaties, and providing estimates for the president’s budget, fiscal policy decisions, and cash management decisions. In collaboration with partners across the US government, OTP also helps shape economic policy, health and retirement policy and clean energy policy. This includes implementation of landmark legislation, such as the Inflation Reduction Act of 2022, the Infrastructure Investment and Jobs Act, the CHIPS and Science Act, SECURE 2.0, the American Rescue Plan, and the Affordable Care Act. Batchelder has also overseen US negotiations in the OECD-led international tax deal, which aims to reduce corporate profit shifting between high- and low-tax jurisdictions. ...

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NY Times: National Taxpayer Advocate Laments IRS Struggles To Answer Taxpayer Phone Calls Despite Budget Infusion

New York Times, Effort to Revamp I.R.S. Faces Challenges Despite Funding Infusion:

The Office of the National Taxpayer Advocate lamented that the tax collection agency, which now faces budget cuts in Congress, is still struggling to answer the telephones.

A multibillion-dollar federal effort to modernize the Internal Revenue Service has not yet solved the agency’s struggles to answer customers’ calls, ameliorate identity theft or process amended tax returns, the agency’s watchdog wrote on Wednesday in a report to Congress.

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NY Times: IRS To Begin Trial Of Its Own Free Tax-Filing System

New York Times, I.R.S. to Begin Trial of Its Own Free Tax-Filing System:

The Internal Revenue Service is rolling out a free option for filing federal tax returns this year to some residents of a dozen states.

Last month, the agency published details of its plan to test an in-house filing system, in which taxpayers submit their federal tax returns directly to the agency online at no cost. Residents of 12 states are eligible to participate if they meet certain criteria.

“This is a critical step forward for this innovative effort that will test the feasibility of providing taxpayers a new option to file their returns for free directly with the I.R.S.,” Danny Werfel, the agency’s commissioner, said in a recent statement.

While the direct filing system is starting on a limited basis, it has already faced some resistance, particularly from commercial tax-preparation companies.

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Longtime Tax Watchdog J. Russell George Dies After Illness

Bloomberg, Longtime Tax Watchdog J. Russell George Dies After Illness:

J. Russell George, who served as a key IRS watchdog for nearly two decades, most notably during the 2013 controversy over groups’ applications for tax-exempt status—died earlier this week after a lengthy illness.

George had served as the Treasury Inspector General for Tax Administration since 2004, after being nominated by then-President George W. Bush and confirmed by the Senate. His death was announced Wednesday by Acting Inspector General Heather Hill. ...

In May 2013, George’s office released what became a bombshell report finding that the IRS had subjected conservative groups’ applications for tax-exempt status to extra scrutiny and delays, triggering a political firestorm for the agency and the Obama administration. Democrats criticized George at the time for leaving out the fact that liberal groups also faced extra IRS scrutiny. George said he didn’t know about the scrutiny of progressive groups until after the initial report was released. ...

He grew up in New York City and earned his bachelor’s degree from Howard University and his law degree from Harvard University.

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Why Cutting IRS Funding Is Not Conservative

Washington Post Op-Ed:  Why Cutting IRS Funding Is Not a Conservative Move, by Brian Riedl (Manhattan Institute):

Last year, President Biden and congressional Democrats enacted $80 billion in new IRS funding for the next decade. During the debt limit debate earlier this year, Republicans successfully negotiated a $20 billion cut in that funding. And now, in the appropriations showdown, they’re going after the rest of it.

The IRS has long been an easy and popular target, because few of us enjoy paying taxes. And the agency has invited criticism with its history of overzealous audits, including a heavy-handed targeting of conservative nonprofit organizations during the Obama administration that fueled the latest round of GOP cuts.

However, defunding and weakening the IRS is not conservative. To the contrary, it will ultimately drive up deficits and raise middle-class taxes.

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Joint Tax Committee Publishes Bluebook: General Explanation Of Tax Legislation Enacted In The 117th Congress

The Joint Committee on Taxation has released General Explanation of Tax Legislation Enacted in the 116th Congress (JCS-1-23) (Dec. 21, 2023) (560 pages):

This document, prepared by the staff of the Joint Committee on Taxation in consultation with the staffs of the House Committee on Ways and Means and the Senate Committee on Finance, provides an explanation of certain tax legislation enacted in the 117th Congress.

For each provision, this document includes a description of present law, an explanation of the provision, and the effective date. Present law describes the law in effect immediately before enactment of the provision and does not reflect changes to the law made by the enacting legislation or by subsequent legislation. For a bill with a Committee report (or, in the absence of one, a contemporaneous technical explanation prepared and published by the staff of the Joint Committee on Taxation), this document is based on the language of the report (or explanation). This document follows the chronological order of the tax legislation as signed into law.

Section references are to the Internal Revenue Code of 1986, as amended (the ‘‘Code’’), unless otherwise stated. ...

The Appendix provides the estimated budget effects of tax legislation described in this document.

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WSJ: Does The IRS Have Authority To Circumvent Congressional Tax Policy With Tax Cuts By Administrative Fiat?

Wall Street Journal, IRS Delays Tax Deadlines Set by Congress. It Could Cost $8 Billion.:

Congress set strict enforcement deadlines when it created new tax requirements for e-commerce platforms, older 401(k) savers and cryptocurrency brokers.

The Internal Revenue Service has now postponed them all for two years—which could cost the Treasury more than $8 billion. ...

The IRS decisions help the affected taxpayers avoid burdensome requirements. Millions of people selling goods on eBay or reselling tickets on StubHub won’t get confusing tax forms in January. High-income workers age 50 and up can still make their full retirement contributions in pretax dollars next year instead of posttax accounts. And crypto brokers don’t yet have to report transactions that could lead to eight billion information returns going to the IRS each year.

At least in the short run, however, the tax agency’s moves frustrate lawmakers’ attempts to raise revenue and plug gaps in tax compliance.

They are symptomatic of a phenomenon in which administrations of both parties take action without the oversight or cost analysis required by legislation. The tax delays aren’t as headline-grabbing as President Biden’s student-loan relief or former President Donald Trump’s border-wall construction. But they allow the IRS to deliver what are, in a sense, tax breaks without congressional approval.

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Sen. Crapo: Democrats’ Tax Gap Manipulation

Sen. Mike Crapo (R-Idaho; Ranking Member, Senate Finance Committee), Democrats’ Tax Gap Manipulation, 181 Tax Notes Fed. 1457 (Nov. 20, 2023):

The IRS recently issued a new projection of the tax gap [IRS Research, Applied Analytics and Statistics, “Federal Tax Compliance Research: Tax Gap Projections for Tax Years 2020 and 2021” (Oct. 12, 2023)]. While the projection’s release received much attention and some hand-wringing from Democrats, it actually adds little to the previous estimate. Essentially, the new projection adjusts that estimate for recent receipts, not changes in compliance. 

The tax gap figure is used to gauge taxpayer compliance and projects the difference between taxes believed to be owed and taxes actually paid. Per the IRS’s projection, the 2021 tax gap is $688 billion, an increase of over $192 billion compared with the 2014-2016 estimate [IR-2023-187, Updated Tax Gap Estimate Shows Big Jump From Prior Years (Oct. 12, 2023)].

In releasing this information, the IRS pledged an “urgent” crackdown by boosting IRS enforcement, especially on high-income individuals, partnerships, and corporations. But the premise for this new crackdown is built on a flawed foundation, albeit a convenient narrative to support the IRS’s bloated budget and new auditing regime.

It is crucial here to understand what the IRS’s $688 billion projection is and is not. It is simply a projection of what the 2021 tax gap would be, assuming that the tax law and compliance rates from the 2014-2016 estimate are held constant and applied to the 2021 economy.

The IRS claims the tax gap is dramatically rising. This is misleading at best. ...

When viewed in proportion to the economy’s size over the last 20 years, the tax gap is actually flat and historically average. The Cato Institute examined the tax gap as a percentage of GDP and found that for 2021, the tax-gap-to-GDP ratio was 2.9 percent, squarely in line with the last 20 years of estimates.

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IRS Announces Direct e-File Tax Return Pilot Program In 13 States For 2024 Filing Season

IR-2023-192 (Oct. 17, 2023), Agency Finalizing Direct File Pilot Scope, Details as Work Continues This Fall; EITC, Child Tax Credit Among Projected Provisions Covered:

As part of larger transformation efforts underway, the Internal Revenue Service announced today key details about the Direct File pilot for the 2024 filing season with several states planning to join the innovative effort.

The IRS will conduct a limited-scope pilot during the 2024 tax season to further assess customer support and technology needs. It will also provide a platform for the IRS to evaluate successful solutions for potential operational challenges identified in the report the IRS submitted to Congress earlier this year.

Arizona, California, Massachusetts and New York have decided to work with the IRS to integrate their state taxes into the Direct File pilot for filing season 2024. Taxpayers in nine other states without an income tax — Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming — may also be eligible to participate in the pilot. Washington has also chosen to join the integration effort for the state's application of the Working Families Tax Credit. All states were invited to join the pilot, but not all states were in a position to join the pilot at this time.

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WSJ: A Case of Tax Fraud—At The IRS

Wall Street Journal Editorial, A Case of Tax Fraud—at the IRS:

The Internal Revenue Service makes clear that taxpayers who willfully conceal or alter tax documents risk severe penalties. But what happens when government auditors are caught manipulating documents and hiding those actions in court?

The IRS this month agreed to settle and drop a penalty in Lakepoint Land II LLC v. Commissioner. A judge in U.S. Tax Court had sanctioned the IRS in the case, ripping the agency’s counsel for acting in “bad faith” and having “multiplied the proceedings in this case unreasonably and vexatiously” by failing to tell the court that documents it used to assess a penalty had been backdated.

Several other Tax Court cases suggest wider IRS document fiddling as the agency has gone after “syndicated conservation easements.” Congress created conservation easements in the 1980s, letting land owners donate the development rights for acreage to a qualified charity in return for a tax deduction. ...

One legal rub: The federal tax code requires an IRS supervisor to approve in writing the initial determination of a penalty. That didn’t happen in Lakepoint. The company presented emails to Judge Christian Weiler showing that the IRS agent on the case failed to get her supervisor’s written approval in 2016 for a proposed $15 million penalty.

When the agent realized this—in February, 2017—her supervisor acknowledged in an email that this was a “HUGE oversight” and backdated her signature to seven months earlier. IRS attorneys nonetheless swore to the accuracy of this date, and they continued to mislead the court for months even after the falsification was discovered. Judge Weiler ordered the IRS to pay Lakepoint’s fees and expenses.

Three more partnerships—Arden Row Assets, Basswood Aggregates, and Delwood Resources—have presented evidence of similar backdating by a different IRS agent and manager. ... The cases suggest a culture of disregard for tax laws that the IRS requires taxpayers to follow to the tee. Imagine the fines or prison sentences awaiting average Joes who backdate tax documents and lie about it.

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Former Assistant Attorney General: Hunter Biden May Face A Big Tax Bill

Wall Street Journal Op-Ed:  Hunter Biden May Face a Big Tax Bill, by Eileen J. O’Connor (Assistant Attorney General, Tax Division, U.S. Department of Justice (2001-2007)):

Special counsel David Weiss has charged Hunter Biden with making false statements on an application to purchase a gun. (Mr. Biden has pleaded not guilty.) Now go collect the taxes.

After working on it for about three years, Internal Revenue Service criminal investigators submitted a lengthy “Special Agent Report” to the Justice Department’s Tax Division, recommending that prosecutors bring felony charges against Mr. Biden for 2014 and 2018 for willful attempt to evade or defeat taxes and willful filing of a false return. Both are felonies punishable by a fine of up to $100,000 and prison time, up to five years for the former offense, three for the latter. The report also recommended that Mr. Biden be charged with willful failure to file returns or pay taxes for each of five years, 2015-19. These are misdemeanors punishable by up to a year in prison or $25,000, or both. Special agent Joseph Ziegler testified that the Tax Division produced a 99-page memo authorizing these criminal charges. ...

Ordinarily, the IRS must assess taxes and begin proceedings to collect them within three years of the date the return reporting them is filed. But when no return is filed, or when the return is false, fraudulent or otherwise represents a willful attempt to defeat or evade tax, the statute of limitations doesn’t start running.

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Lesson From The Tax Court: Equitable Tolling During Government Shutdown?

Like winter, a shutdown is coming.  And last week, the Tax Court issued a really important reviewed decision about equitable tolling of CDP hearings.  The two are connected because the Tax Court lesson may become very useful for taxpayers faced with an inaccessible IRS during periods of government shutdown

For those of us having a hard time keeping track, this Wikipedia entry gives a useful history of federal government shutdowns.  Going in reverse chronological order, it appears that top three were: (1) during the Trump administration—one at the start of 2018 and then also a long 35-day shutdown from the end of 2018 into 2019; (2) during the Obama administration—16 days in 2013; and (3) during the Clinton administration—21 days in in 1995–1996.  We may well be on the way to another one when the 45-day Continuing Resolution passed yesterday expires.

Last week's opinion in Organic Cannabis Foundation v. Commissioner, 161 T.C. No. 4 (Judge Goeke), may help taxpayers who must deal with a closed IRS during the next shutdown.  In that case, fourteen of the sitting Tax Court judges interpreted §6320 to permit equitable tolling of the 30-day period that taxpayers have to request a CDP hearing after the IRS files a Notice of Federal Tax Lien (NFTL).  Three judges thought that interpretation squarely conflicted with the applicable Treasury Regulation and wanted to hear arguments on the validity of the regulation.  The Court’s reasoning applies as much to §6330 CDP hearings as well, making it even more consequential.

What makes this a really useful decision is the idea that a government shutdown might indeed qualify taxpayers for equitable tolling.  Details below the fold.

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IRS Consultant Charged With Disclosing Tax Return Information To New York Times (Trump) And ProPublica (Thousands Of Wealthy Americans)

U.S. Department of Justice Press Release, IRS Consultant Charged with Disclosing Tax Return Information to News Organizations (indictment):

An Internal Revenue Service (IRS) consultant was charged today with disclosing tax return information without authorization.

According to court documents, Charles Littlejohn, 38, of Washington, D.C., while working at the IRS as a government contractor, stole tax return information associated with a high-ranking government official (Public Official A) and disclosed it to a news organization (News Organization 1). Littlejohn also stole tax return information for thousands of the nation’s wealthiest individuals, and disclosed this tax return information to another news organization (News Organization 2).

Littlejohn is charged with one count of unauthorized disclosure of tax returns and return information. If convicted, he faces a maximum penalty of five years in prison.

Acting Assistant Attorney General Nicole M. Argentieri of the Justice Department’s Criminal Division and Deputy Inspector General for Investigations Trevor Nelson of the Treasury Inspector General for Tax Administration (TIGTA) made the announcement.

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WSJ: Taylor Swift And Lionel Messi Fans Face Tax Scrutiny From Democrats’ American Rescue Plan

Wall Street Journal, The IRS Is Going to Know if You Sold Taylor Swift ‘Eras’ Tickets:

If you cashed in this summer by reselling tickets to Taylor Swift’s “Eras Tour” or Lionel Messi’s first games in a bubblegum-pink jersey, brace yourself to pay taxes.

A new law requires ticketing platforms like Ticketmaster and StubHub to give the Internal Revenue Service information on users who sold more than $600 worth of tickets this year.

The new requirements are taking hold amid a banner year for live events in which Swifties, soccer buffs and members of Beyoncé’s BeyHive paid sky-high prices for a chance to see their favorite stars in the flesh. That drove huge markups in the secondary ticket market—and delivered hefty profits to anyone hawking hot tickets.

The average price for Taylor Swift tickets sold in the U.S. on StubHub was $1,095, with the best seats going for thousands of dollars, according to the company, which operates an online market for people to resell and buy tickets. Averages for Beyoncé and Harry Styles clocked in at $380 and $400, respectively. After Lionel Messi joined Major League Soccer, the price of tickets to Inter Miami CF matches shot up to $255 apiece, from $30.

There was an unusually high number of fan ticket resellers this year, StubHub said. Fan sellers, as opposed to professional ticket brokers, have accounted for about 70% of U.S. “Eras Tour” ticket orders—double the proportion of what the company normally sees.

Some savvy or lucky fans resold their tickets to make a profit. Others reluctantly parted ways with tickets because their circumstances changed. ...

In the past, ticket-selling platforms were required to send 1099-K forms if a user received more than $20,000 in revenue and had more than 200 transactions. The new law, part of Democrats’ American Rescue Plan Act coronavirus relief package in early 2021, lowers the threshold to $600, irrespective of the number of transactions. The IRS reporting requirement is triggered by the sale price, not the seller’s profit. ...

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NY Times: IRS To Reduce Audits Of Refundable Credits Like EITC To Ameliorate Racial Disparities

New York Times, I.R.S. Changes Audit Practice That Discriminated Against Black Taxpayers:

The Internal Revenue Service is overhauling how it scrutinizes the tax returns of lower-income Americans as part of an effort to reduce enforcement disparities that have made Black taxpayers far more likely than anyone else to be audited.

At the center of this effort is a major change to how the I.R.S. conducts audits of recipients of the earned-income tax credit, a special tax refund that was created to help low-income workers.

Tax returns that claim the E.I.T.C. have historically been more likely to be selected for audits, even if those investigations tend to yield little in taxes that are owed. Research has shown that audit rates for Black Americans are three to five times higher than for other taxpayers, with audits focused on the tax credit being a major driver of the disparity.

The I.R.S. has pledged to use the $80 billion that it received through the Inflation Reduction Act of 2022 to target wealthy taxpayers and make the tax system more equitable by ensuring that taxpayers are not disproportionately scrutinized because of their race.

“We are making broad efforts to overhaul compliance efforts in a manner that robustly advances our commitment to fair, equitable, and effective tax administration,” Daniel Werfel, the I.R.S. commissioner, wrote in a letter to Senator Ron Wyden of Oregon, the Democratic chairman of the Senate Finance Committee, on Monday.

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NY Times: IRS Deploys Artificial Intelligence To Target The Rich

IR-2023-166, IRS Announces Sweeping Effort to Restore Fairness to Tax System With Inflation Reduction Act Funding; New Compliance Efforts Focused on Increasing Scrutiny on High-Income, Partnerships, Corporations and Promoters Abusing Tax Rules on the Books:

Agency focus will shift attention to wealthy from working-class taxpayers; key changes coming to reduce burden on average taxpayers while using Artificial Intelligence and improved technology to identify sophisticated schemes to avoid taxes

New York Times, I.R.S. Deploys Artificial Intelligence to Catch Tax Evasion:

The Internal Revenue Service has started using artificial intelligence to investigate tax evasion at multibillion-dollar partnerships as it looks for ways to better police hedge funds, private equity groups, real estate investors and large law firms.

The announcement on Friday was intended to show how a more muscular I.R.S. is using some of the $80 billion allocated through last year’s Inflation Reduction Act to target the wealthiest Americans and tackle the kinds of cases that had become too complex and cumbersome for the beleaguered agency to handle.

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IRS Backdating Of Documents Highlights Festering Cultural Rot: ‘If The IRS Doesn't Play By The Rules, They're The Mob’

Bloomberg, IRS Backdating Court Order Spotlights Culture, Attorneys Say:

An unusual Tax Court order requiring the IRS to report what it knew and when about misstatements in a conservation easement case, as well as mounting claims of backdating forms at the agency, are highlighting what some tax attorneys said are festering IRS cultural problems, years in the making.

The Tax Court this week ordered the IRS to identify when agency personnel found out about misstatements to the court about the date that a $15.2 million penalty against conservation easement donor LakePoint was approved. ...

Rod Rosenstein, former deputy attorney general under President Donald Trump, is representing LakePoint in a FOIA lawsuit against the IRS and told Bloomberg Tax he’s reached out to the Treasury Inspector General for Tax Administration.

He plans to refer to the watchdog claims made by three other partnerships—Arden Row Assets LLC, Basswood Aggregates LLC, and Delwood Resources LLC—who are asking the IRS to admit its staff backdated penalty approval forms in their cases as well.

“The question is whether we’re seeing one isolated case or whether were seeing evidence of a pattern of misconduct in IRS,” Rosenstein said. “I think if you’ve looked at these other three cases, it does suggest that there is a pattern.” ...

Tax attorneys say it’s the latest chapter highlighting festering issues of IRS culture being taken over by adversarial us-versus-them attitudes at the agency. Conservation easement cases have been especially contentious [Michelle Abroms Levin, a former Justice Department Tax Division attorney,] said.

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Treasury Department Office Of Tax Legislative Counsel Seeks To Hire Attorneys

Office of Tax Legislative Counsel Attorney-Advisor Positions:

Priority application deadline is July 31, 2023, though we evaluate candidates year-round.

Job Description: The Office of Tax Legislative Counsel (TLC) is part of the Department of the Treasury's Office of Tax Policy responsible for advising the Assistant Secretary for Tax Policy and senior Treasury officials in connection with the formulation of legislative and administrative proposals that further domestic tax policies. TLC consists of over 20 lawyers and tax policy advisors who share a commitment to serve the nation by advising on and reviewing domestic tax policy and legal matters. Attorney-advisors work in the Main Treasury Building located at 1500 Pennsylvania, Avenue, NW, Washington, DC. Partial telework is permitted; some travel may be required.

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IRS Chief Counsel Seeks To Hire 2L, 3L, And Tax LL.M. Students, And Graduates With 1+ Year(s) Experience

Office of Chief Counsel Summer and Honors Jobs: 

IRS, Office of Chief Counsel Summer and Honors job announcements are now open! There are also open job announcements for lateral hires – those attorneys with a year or more of experience.

We are having a virtual event on Tuesday, August 1st at 12:00 pm Eastern to discuss working at the IRS, Office of Chief Counsel and the application process. The announcements for both the honors and summers programs close September 8th. ...

Have you ever wondered about working for the IRS, Office of Chief Counsel? Are you interested in tax or cutting-edge issues? Do you like Litigation or Transactional Law? Have you considered a career with the federal government? IRS' Office of Chief Counsel might be the place for you! Come join us to learn about our programs, how to apply, and ask questions about the application process.

We are hiring 2Ls, 3Ls, and Tax LLM students! Don’t miss this unique opportunity to learn about the Office of Chief Counsel and get some of your questions answered.

We continue to hire for our experienced attorney positions as well. To see experienced positions openings, click here.

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The 40 Americans Wrongfully Detained Around The World Face An Additional Challenge At Home: The IRS

Wall Street Journal, ‘Why Do I Have to Pay Taxes on That?’ Wrongfully Detained Americans Face Bills, Fines and Fraud Back Home:

When Washington Post correspondent Jason Rezaian was released from Iran after 544 days of imprisonment, he said his welcome home came with bills of $20,000 for unpaid taxes, late payment penalties and interest.

Rezaian had given his brother power of attorney to manage his affairs while he was abroad—but that power didn’t allow his brother to submit tax returns on his behalf. “There was no pause button for wrongful detention,” Rezaian said. “I was a hostage…Why do I have to pay taxes on that?”

Families of wrongfully detained U.S. citizens struggle to maintain detainees’ financial lives in their absence, even as they also wage daily battles to secure their loved one’s freedom. Their bureaucratic battles have spurred government officials, advocacy groups and lawmakers to search for ways to help them cut through the red tape.

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Today's 13th Annual IRS/TPC Joint Research Conference On Tax Administration

13th Annual IRS/TPC Joint Research Conference on Tax Administration:

The Internal Revenue Service (IRS) and the Urban-Brookings Tax Policy Center invite you to attend virtually or in-person the only annual conference focused exclusively on tax administration research. Researchers from the IRS, other government agencies, academia, and private organizations will discuss some of the latest analyses seeking to make tax administration as effective as possible.

• Agenda
• Abstracts of Papers

Opening

• Wendy Edelberg (Director, Hamilton Project, Brookings Institution)
• Eric Toder (Institute Fellow, Tax Policy Center)
• Barry Johnson (Deputy Chief Data and Analytics Officer, Research, Applied Analytics and Statistics, IRS)

Session 1: Service is Our Surname

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How Much Did Congress Lose By Defunding The IRS? Way More Than We Thought.

Washington Post Op-Ed:  How Much Did Congress Lose By Defunding the IRS? Way More Than We Thought., by Catherine Rampell:

The White House and Congress recently agreed to claw back more than $20 billion earmarked for the Internal Revenue Service. This deal was, ostensibly, part of a grand bargain to reduce budget deficits.

Unfortunately, it’s likely to have the opposite effect. Every dollar available for auditing taxpayers generates many times that amount for government coffers — and the rate of return is especially astonishing for audits of the wealthiest Americans, according to new research shared exclusively with The Post.

A team of researchers at Harvard University, the University of Sydney and the Treasury Department examined internal IRS data for approximately 710,000 in-person audits from 2010 to 2014 [William C. Boning (Treasury Department), Nathaniel Hendren (Harvard), Ben Sprung-Keyser (Harvard) & Ellen Stuart (University of Sydney), A Welfare Analysis of Tax Audits Across the Income Distribution]. Here’s what they found: ...

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IRS: Contributions To Nonprofit 'Name, Image And Likeness' Collectives Are Not Deductible Charitable Gifts

The IRS Office of Chief Counsel last week released a memorandum (AM 2023-004) concluding that contributions to nonprofit “name, image and likeness” collectives paid to college athletes generally are not deductible charitable gifts:

[I]t is the view of this Office that many organizations that develop paid NIL opportunities for student-athletes are not tax exempt and described in section 501(c)(3) because the private benefits they provide to student-athletes are not incidental both qualitatively and quantitatively to any exempt purpose furthered by that activity.

Wall Street Journal, IRS Nixes Tax Edge for College-Sports Booster Groups Paying Athletes:

The memo is a sign that the IRS will deny many collectives’ applications for charitable status and will begin revoking some prior rulings through audits. It creates significant uncertainty for athletic departments and the collectives that have sprung up since 2021, when the NCAA changed the rules in the wake of a flurry of states changing their laws to allow for athlete endorsements and the Supreme Court decision in NCAA v. Alston. ...

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WSJ: IRS Weighs Creating A Government-Run Tax-Prep Option; Americans Don't Want It

Update: 

• IR-2023-103, IRS Submits Direct File Report to Congress; Treasury Department Directs Pilot to Evaluate Key Issues (May 16, 2023)
• IRS Report to Congress, Inflation Reduction Act §10301(1)(B): IRS-run Direct e-File Tax Return System (May 16, 2023)

Wall Street Journal, IRS Weighs Creating a Government-Run Tax-Prep Option:

The Biden administration is considering creating a government-run alternative to TurboTax and H&R Block, drawing resistance from Republicans and companies fearing a loss of business.

Democrats and consumer advocates have been pushing for the Internal Revenue Service to offer free online tax filing on its website, particularly for people with straightforward returns. Their core argument: Tax-preparation companies charge middle-income Americans for what advocates think should be a free public service.

The companies, meanwhile, are boosting lobbying spending and leaning on lawmakers to fight a change that could shrink their revenue, and they are emphasizing free options already available for taxpayers. They see the changes under consideration as a first step toward an even bigger threat in which the IRS could use information it gets from employers and other sources to prepare a first draft of taxpayers’ returns for them.

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NY Times: IRS Admits Black Americans Face More Audit Scrutiny

New York Times, I.R.S. Acknowledges Black Americans Face More Audit Scrutiny:

The Internal Revenue Service said on Monday that Black taxpayers have been far more likely to be audited than others and that it is considering changes to its case selection process to address discrimination in how the tax code is enforced.

The acknowledgment came after the publication of research this year showing that Black taxpayers were disproportionately audited, prompting calls from members of Congress for a review into the methodology and algorithms that help determine who is selected. The tax collection agency, which received an $80 billion infusion in funding last year as part of the Inflation Reduction Act, has said it would work to make the system more equitable.

“While there is a need for further research, our initial findings support the conclusion that Black taxpayers may be audited at higher rates than would be expected given their share of the population,” Daniel Werfel, the I.R.S. commissioner, wrote in a letter to Senator Ron Wyden of Oregon, the Democratic chairman of the Senate Finance Committee.

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WSJ Op-Ed: Congress Gave $80 Billion To A Lawless IRS

Wall Street Journal Op-Ed:  Congress Gave $80 Billion to a Lawless IRS, by Travis Nix (J.D. 2023, Georgetown):

After nearly eight months of deliberation, the Internal Revenue Service has finally released a lightly detailed plan for how to spend the additional $80 billion Congress allotted in 2022. Taxpayers should be dubious of IRS promises to use this funding to ensure fairer and more lawful tax-code enforcement. The few details in the report’s vague language indicate that the IRS wants to use its newfound money to enforce sections of the tax code that courts struck down twice as unlawful last year. Congress should stop funding the illegal purposes at the IRS.

One of the few definite action items the IRS included in its 150-page report was an enforcement objective to levy tax penalties against taxpayers engaging in “listed transactions”: practices the service has labeled as prone to tax abuse. These currently consist of a series of 36 transactions that the IRS has simply published on its website and in taxpayer notices over the last two decades. The IRS enforces and cites these notices as having the force of law even though taxpayers had no opportunity to voice concerns about these rules. Because the notices didn’t undergo the proper review process to become regulations, they can’t legally be enforced and should be nonbinding. ...

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Inside The IRS’s Shrinking Band Of Wealth Hunters

Bloomberg Businessweek, Inside the IRS’s Shrinking Band of Wealth Hunters:

Former auditors dish on truant taxpayers, decrepit tech and why $80 billion might not be enough to fix everything that’s wrong.

If you ever meet an off-duty Internal Revenue Service auditor, they probably won’t admit where they work. “What do you do?” is “always a party killer,” says former agent Elyse Katz. Best to keep it vague, she says, and hope that “accountant” is boring enough to move the conversation along to another topic.

Few things make Americans more anxious than an IRS agent in their midst, even when the occasion is social rather than, say, an audit. It’s the audit that inspires many people’s fear of the agency, helping it poll as the least trusted of major federal departments. Last year, when President Joe Biden and congressional Democrats secured almost $80 billion in extra IRS funding across the next decade under the Inflation Reduction Act, it didn’t take long for the agency’s critics to raise the prospect of rampant nosiness, with Republican politicians claiming that an army of 87,000 armed agents would soon be poking through Americans’ finances.

The notion was absurd, to say the least, and not only because almost no IRS agents carry guns. Across the past few decades, the agency has been decimated by cuts, to the point that by most measures it’s the worst-funded major federal department. It’s down to 84,000 (almost all unarmed) workers, a loss of 10,000 employees since 2010 and about the same as in 1974, when the US had 120 million fewer people and an economy a quarter of its current size. The IRS’s most experienced revenue agents have departed at an even higher rate than other employees, leaving 99.9% of the most complex and opaque type of business returns unexamined and millionaires’ and billionaires’ audit rates tumbling by 80% to 90%.

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IRS: Forced Sterilization Payments Are Excludible From Income Under § 104(a)(2)

IR 2023-81 (Apr. 14, 2023), IRS Issues Frequently Asked Questions on Compensation Payments Made by States for Forced Sterilization:

The Internal Revenue Service today issued frequently asked questions (FAQs) to provide guidance for victims who have received state compensation payments for forced, involuntary, or coerced sterilization, in Fact Sheet FS-2023-11.

Some states have enacted legislation to compensate victims of forced sterilization under state programs. These states have made payments to those victims pursuant to the legislation. The FAQs address the federal income tax consequences of these payments.

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IRS Releases 2022 Data Book: Audit Rates Fell, But $80 Billion New Funding Will Reverse Trend With 7,000 More Tax Accountants, Attorneys, And Agents To Target The Rich

IR-2023-82, IRS Releases Fiscal Year 2022 Data Book Describing Agency’s Activities:

The Internal Revenue Service today issued its annual Data Book detailing the agency's activities during fiscal year 2022 (Oct. 1, 2021 – Sept. 30, 2022), including revenue collected and tax returns processed.

In many areas, the statistics in the 2022 Data Book reflect the impact that past resource constraints had on the agency's ability to provide adequate taxpayer service and address compliance issues, including audits of higher income taxpayers, partnerships, and large corporations. ...

For the past decade, the IRS has seen an increase in the number of returns filed paired with a decrease in resources available for examinations particularly for the most complex tax returns of high-income and high-wealth individuals, large corporations, and complex partnerships. Going forward, as the IRS moves to implement the Strategic Operating Plan released earlier this month, the agency is focused on pursuing high-income and high-wealth individuals, complex partnerships and large corporations that are not paying the taxes they owe. As a result, the IRS has no plans to increase the audit rate for households making less than $400,000.

The 2018 information is the most recent year we have final audit rate data because it is the most recent tax year for which the statutory period has closed, meaning in most cases no new audits will be started and the audit coverage rates should be final.

Typically, audit rates for higher-income categories increase over time as new audits are opened during the statutory period. This means the audit numbers for higher-income taxpayers listed in the 2022 Data Book Table 17 will increase over time for tax years within the statutory period; the final exam rates for these taxpayers will be significantly higher in future years.

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WSJ: The Problem With The IRS Pledge Not To Audit More Earners Under $400,000

Wall Street Journal, The Problem With the IRS Pledge Not to Audit More Earners Under $400,000:

What are your odds of being audited? ...

The audit rate sounds straightforward: the share of taxpayers with a given level of reported income who are audited. In fact, a look at how that number is calculated reveals some important challenges for U.S. tax collection.

The audit rate has newfound relevance because of the IRS’s new $80 billion in funding. Treasury Secretary Janet Yellen had directed that “any additional resources—including any new personnel or auditors that are hired—shall not be used to increase the share of small business or households below the $400,000 threshold that are audited relative to historical levels.” ...

At all income levels, the audit rate has plunged over the past decade amid declining IRS resources and head count, as a Government Accountability Office report released last year shows. 

$400,000 is a fairly high threshold—fewer than 2% of tax returns have adjusted gross income above that, according to IRS data. But why pursue those families when there might be multimillionaires and billionaires dodging millions of dollars in taxes?

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