The Internal Revenue Service (IRS) in the United States is intensifying its efforts to target high-income earners and businesses with the help of new hires and artificial intelligence (AI) technology. The agency has announced the availability of over 3,700 employee positions focused on tax enforcement work, specifically targeting complex partnerships, large corporations, and high-income individuals. The goal is to hold these entities accountable and ensure they are fulfilling their tax obligations.
IRS Commissioner Danny Werfel has reassured the public that the new hires will primarily focus on higher-income brackets and complex tax areas, such as partnerships, rather than average taxpayers earning less than $400,000 annually. However, a recent watchdog report has raised concerns about the lack of a clear definition of high-income, which puts the agency’s claim of not targeting individuals below the $400,000 threshold into question.
One of the key areas of focus for the IRS is pass-through entities, which include general partnerships, sole proprietorships, limited partnerships, and others. These entities do not pay taxes on their revenues directly; instead, the income is passed on to the individual business owners, who then file taxes based on their personal tax rates. The IRS aims to disrupt the use of pass-through structures by large partnerships to shield income and avoid paying taxes through a new unit expected to begin operation in 2023.
In addition to the increased number of hires, the IRS is also integrating AI and enhanced technological capabilities to enhance tax enforcement efforts. This includes using AI to detect tax evasion, identify emerging compliance risks, and improve case selection tools. The IRS acknowledges that audit rates for high-earning categories have experienced significant declines over the past decade. With the help of AI technology, the agency aims to identify potential compliance risks in areas such as partnership tax, general income tax, accounting, and international tax.
The IRS has announced plans to open examinations of 75 of the largest partnerships in the U.S., representing various industries ranging from hedge funds to large law firms. These partnerships have assets exceeding $10 billion on average. The goal is to ensure that partnerships are accurately reporting and fulfilling their tax obligations.
The IRS is also increasing scrutiny on several other fronts. This includes seeking to counter money laundering through initiatives such as electronic filing requirements for certain types of forms related to cash transactions. The agency also plans to enhance its scrutiny of cryptocurrency transactions, digital currency exchanges, and related payment processors to ensure compliance with tax regulations.
Furthermore, the IRS intends to tackle tax avoidance through measures such as investigating the use of offshore funds and cracking down on abusive tax shelters. The agency plans to target individuals with undisclosed foreign bank accounts and individuals exploiting tax benefits in territories like Puerto Rico and offshore funds based in Malta.
It is important to highlight that the IRS’s approach has attracted public concern over potential harassment of average low- and middle-income citizens due to the agency’s extensive powers. While the IRS aims to focus its efforts on high-income categories, there is a need for balance to avoid burdening average taxpayers with complicated tax rules and regulations.
The IRS’s efforts to target high-income earners and businesses reflect its commitment to ensuring tax compliance and preventing tax evasion. The combination of new hires, improved technology, and a specialized division focused on tax enforcement underscores the agency’s determination to hold entities accountable and maintain the integrity of the tax system.