The IRS Is Cracking Down on These High-Income Earners. Are You One of Them?

The IRS Building, Washington D.C.

The IRS has introduced a significant tax enforcement initiative, setting new parameters to scrutinize high-income earners, partnerships, and individuals with foreign bank accounts. Stating that this effort aims at “restoring fairness to [the] tax system,” the agency emphasizes the focus on wealthy taxpayers who have seen audit rates significantly decrease over the last decade.

To assess your audit risks and potential tax liabilities, consulting a financial advisor is recommended. Speak with an advisor today.

Targeting Million-Dollar Earners and Large Tax Debts

The IRS’s crackdown targets individuals who report an income exceeding $1 million and have over $250,000 in recognized tax debt. The agency unveiled 1,600 taxpayers fitting these criteria collectively owing hundreds of millions in unpaid taxes. Specialized revenue officers are planned to be assigned to collect from these high-end delinquent accounts, beginning in fiscal year 2024. The IRS anticipates reaching out to those falling into this category starting next year.

This enforcement announcement comes after the IRS received additional funding from the Inflation Reduction Act. The agency aims to utilize the funding to increase collection from wealthy tax evaders while maintaining low audit rates for individuals earning under $400,000 annually. Moreover, the IRS plans to reduce or limit audits for moderate- and low-income taxpayers claiming the Earned Income Tax Credit (EITC).

AI-Powered Large Partnership Audits

The IRS is expanding examinations of large partnership tax returns by leveraging artificial intelligence to analyze these complex returns. The use of machine learning is expected to identify anomalies and effectively target non-compliant returns for audit, also enabling more efficient use of limited IRS exam resources on detailed exams of complex partnership returns. The plan calls for opening audits of 75 of the largest partnerships in the U.S. and mailing compliance notices to 500 partnerships with unexplained balance sheet discrepancies potentially triggering audits.

The Goals of Financial Enforcement

The IRS is emphasizing that these new initiatives won’t impact moderate- and lower-income taxpayers. However, taxpayers with partnership interests, particularly in large private equity funds, hedge funds, or real estate partnerships, might be affected and should be mindful of the new enforcement efforts.

Enforcement on Foreign Financial Accounts

The IRS is strengthening enforcement for failure to disclose foreign bank and financial accounts by planning to audit the most serious offenders in 2024. Taxpayers with foreign accounts or assets are advised to pay close attention to their FBAR filing obligations and the potential penalties for non-compliance.

Bottom Line

The IRS is expanding its enforcement efforts to include high-income taxpayers and large partnerships, reminiscent of a decade ago. The heightened scrutiny extends to individuals holding interests in major partnerships or foreign financial accounts. Consulting a financial advisor with tax expertise can be a helpful strategy to navigate these new developments. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

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Olivia Carter

Olivia Carter revs up excitement in the world of NASCAR. As a dedicated motorsports enthusiast, she covers race results, driver profiles, and the latest developments in the NASCAR world, keeping fans on the edge of their seats.