IRS Gets Massive Enforcement Budget: What This Means for Taxpayers
By Kori Bogard
With the signing of the Inflation Reduction Act into law this August, a significant increase in resources is headed for the Internal Revenue Service (IRS). According to Congressional Research Service, $79.6 billion is being appropriated to the IRS through 2031, over half of which ($45.6 billion) will be directed toward enforcement in the form of additional enforcement agents and legal support.
The eventual fallout from this is unclear, but one can reasonably predict more audits are on the horizon. While it may take a few years for the additional resources to convert to tangible IRS operations felt by individuals and companies, it’s never too early to make sure you and your business are prepared.
With that in mind, and tax season around the corner, now is a good time for an evaluation of your tax situation.
In our forensic accounting practice, here are some of the common tax issues we see and how you can avoid them.
- We frequently come across such poor accounting records that, in our opinion, they would not substantiate tax deductions. Some of the more common types of unsupported tax deductions that we see consist of meals and entertainment, travel, charitable contributions, and expenses itemized as “miscellaneous.”
- Ensure you have proper support for these deductions to avoid IRS penalties. Proper support includes receipts, time records for payroll, 1099 filings, calendars showing nature of meetings and travel.
- Clean up books and financial records to avoid deductions being disallowed for lack of support. Using software for your accounting, such as QuickBooks, that can electronically integrate with bank accounts, can tremendously simplify the accounting work.
- Retain proper records on any planned deductions for as long as required by IRS rules.
- In shareholder disputes, we often uncover self-dealing transactions. If you own a small business, make sure you are not recording any personal expenses as the IRS could begin a more stringent search for such.
- If you are gifting or donating property, ensure you are valuing it properly. For estate and gift tax reporting purposes, the IRS requires a taxpayer to attach a business appraisal if a business valuation discount has been taken. More estate and gift tax returns could be evaluated for compliance with this rule.
- We are beginning to see more cryptocurrency transactions for businesses and individuals. There has been a great deal of uncertainty around IRS rules and how they apply to cryptocurrency. The IRS recently required brokers to report more information on cryptocurrency transactions starting in 2023. It would not be surprising to see this be a point of emphasis for IRS enforcement moving forward.
More enforcement means more audits, and that equates to more risk for businesses and individuals. It is better to be safe than sorry, so make sure you put some extra care into preparation this year.
Kori Bogard is skilled at performing complex financial analysis and investigations leveraging several years of experience with the office of an attorney general and a major accounting firm.
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