Internal Revenue Service Audit Priorities
By Shaun Michelle James, Attorney, Smith Pauley
On September 8, 2023, the IRS made a public announcement, highlighting new developments in its audit and compliance areas, drawing special attention from professionals in the real estate law sector. The outlined changes include: Under the High Wealth, High Balance Due Taxpayer Field Initiative, the IRS is intensifying its efforts to audit high-earning individuals. Specifically, those with a total positive income exceeding $1 million and an acknowledged tax debt surpassing $250,000 will come under increased scrutiny.
The IRS is escalating its Large Partnership Compliance (LPC) program, which employs Artificial Intelligence to tackle the intricate tax issues and structures found in major partnerships. Initiated in 2021, the program's expansion will now incorporate additional large partnerships, typically characterized by asset holdings above $10 billion. This move, however, is expected to concern a limited number of DIRT subscribers due to the scale of the partnerships involved. There is increased attention towards partnership entities with over $10 million in assets, triggered by the detection of balance sheet discrepancies amounting to millions of dollars. The IRS noted a rising trend in such inconsistencies, with numerous taxpayers failing to provide mandatory statements clarifying these differences. The agency’s concentrated efforts aim to swiftly address these balance sheet discrepancies, particularly among large partners identified as high-risk. This category, being significantly broader than the second, is anticipated to resonate more with DIRT subscribers.
These refinements in the IRS’s audit and compliance protocols underscore a systematic enhancement aimed at ensuring greater tax compliance, especially among high-income individuals and large partnership entities.
Key Takeaways:
Serious efforts by the IRS are changing the agency’s focus and efforts to “restore fairness in tax compliance”, shifting review and audit attention to high-income individuals and businesses. In part, the shift is to focus more on tax schemes and determining where wealthy taxpayers can shield their income. Digital assets, accounts in foreign banks, and contractors are issuing payments to subcontractors that are really shell companies for the contractor to ultimately recover those subcontractor payments. These are just a couple of the issues that the IRS is looking to address. For more information about this go to: www.irs.gov/newsroom and search for ‘IRS announces sweeping effort,’ and select the news release dated 2023-09-08.
Shaun James was an administrative professional in the non-profit arts industry serving the greater Omaha metropolitan area. Her experience in the non-profit world provided her with unique opportunities to work with city, county, state and federal officials and agencies, as well as key members of the business community. She focuses her practice on real estate areas and works regularly with public officials, contractors and outside professionals to assist clients achieve their goals in the use, development, financing and valuation of their property.
Shaun served on the board of directors of the Friends of the Omaha Public Library from 2000 to 2010, including terms as president, secretary and membership chair. She is a volunteer with the Nebraska Humane Society, assisting the NHS veterinarians and technicians with the care of animals since 2006. Shaun received the NHS Volunteer of the Year in 2015. She received the Outstanding Service to the Community in 1998 for producing a mock trial video of “Goldilocks and the Three Bears” for use in schools during Law Week.