Caution: Will You or Your Partnership be a Target of the IRS’s New Enforcement Program?

As a follow up to our previous alert about the IRS intensifying enforcement measures targeting wealthy taxpayers and large partnerships, we wanted to provide you with the IRS’s updates on this new initiative. Utilizing funding from the Inflation Reduction Act of 2022, the IRS is committed to ensuring that taxpayers pay their fair share, and closing the tax gap.

Since the implementation of the new program, the IRS has recovered more than $482 million from millionaires who had outstanding tax debts, and has collected another $38 million from 175 wealthy taxpayers as part of its piloting of the initiative. The agency is actively pursuing cases of individuals and entities using partnerships to evade self-employment taxes, showcasing its dedication to addressing sophisticated tax avoidance schemes. Notably, recent successful cases, which include the sentencing of individuals involved in fraudulent tax shelters, underscore the IRS’s commitment to holding individuals and entities accountable for tax evasion and financial misconduct.

In connection with the increased focus on pursuing high-net-worth individuals, the IRS has hired some 560 new accountants. To date, it has commenced examinations of 1,600 taxpayers, 900 of which have already been assigned to revenue officers. These efforts are concentrated on those taxpayers with more than $1 million in income or more than $250,000 in tax debt.

In addition to focusing on high-net-worth individuals, the IRS is turning its attention to large partnerships with balance sheets of over $10 million in assets. In particular, the agency has identified an increasing number of discrepancies between end-of-year balances and beginning balances of the following year, indicating non-compliance issues. This has generated 480 inquiries in the last quarter alone. Further, the IRS is conducting over 80 audits, scrutinizing partnerships around their reporting of self-employment earnings with regard to partners that provide services but are inappropriately claimed to qualify as “limited partners.”

Anchin’s Tax Controversy group is comprised of former tax auditors with decades of collective experience, enabling us to provide rare insight on strategies to help minimize your exposure and resolve federal disputes efficiently. Our team’s unique perspective and strong track record in audit defense along with our credibility with the IRS help us manage issues and present you with the best possible advice.

For more information, updates and assistance related to the IRS’ enforcement efforts, please contact Alan Goldenberg, Principal and Leader of the State and Local Tax and Tax Controversy groups, or your Anchin Relationship Partner.