Business Owners, High-Income and High-Net-Worth Individuals Beware

Transcript of Podcast Episode 151

According to the National Taxpayer Advocate’s Objectives Report to Congress for Fiscal Year 2022,¹ issued on June 30, 2021, more than 5,500 IRS employees leave the IRS for other employment each year. Between fiscal years 2017 and 2019, the IRS failed to hire 5,000 new employees for which it had allocated funding. The IRS itself reported that more than 33,000 full-time positions were lost between fiscal years 2010 and 2020. Although hiring activity has increased of late, there were still fewer employees in 2020 than ten years earlier.²

Erin M. Collins, the National Taxpayer Advocate, concluded: “If the IRS does not make significant changes, these staffing shortages will compound and pose significant threats to the U.S. Treasury and indirectly harm taxpayer services and voluntary compliance.”

In May 2021, the Biden Administration announced its proposal to provide the IRS with over $80 billion over the next ten years so that they can update their technology and hire new personnel to increase audits of wealthy taxpayers and companies. The goal will be to raise over $700 billion in tax revenue during that period. Since then, the IRS has announced plans to hire about 2,000 new employees by September 2021 – 1,300 of whom will be revenue agents and up to 500 assigned to the Criminal Investigation unit within the IRS.

Although the Biden Administration’s budget proposal has not been finalized as of the publication of this podcast, the writing is on the wall. The IRS will expand its efforts to discover tax evasion through increased information reporting, updated technology and increased examinations. Most of the focus will be on high-income and high-net-worth individuals, as well as companies. Sophisticated and complicated tax-reduction strategies used by wealthy individuals as well as businesses, such as conservation easements and micro-captive insurance arrangements, are already encountering increased IRS objections and resulting in audits, examinations, and litigation.

So, wealthy taxpayers and business owners beware. The chances of having to defend a tax return, along with the time, expense and emotional energy needed to do so, could become significantly greater than in recent years.

¹ Taxpayer Advocate Service. (2021).
National Taxpayer Advocate’s Objectives Report to Congress for Fiscal Year 2022.
https://www.taxpayeradvocate.irs.gov/wp-content/uploads/2021/06/JRC22_FullReport.pdf

² Internal Revenue Service. (2020).
Internal Revenue Service Progress Update Fiscal Year 2020: Putting Taxpayers First. (Publication 5382).
https://www.irs.gov/pub/irs-pdf/p5382.pdf

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