The Inflation Reduction Act will give the IRS money to audit the rich and hunt tax cheats. Stronger enforcement will come with conditions, however.
A bigger and stronger Internal Revenue Service will soon be coming after more wealthy tax cheats, thanks to the Inflation Reduction Act.
The landmark legislation that President Joe Biden signed into law on Aug. 16 includes $80 billion for the IRS over the next 10 years – with a big slice of that money earmarked for better IRS enforcement.
Proponents say the huge bump in IRS funding will generate an additional $204 billion over that time from otherwise lost tax collection. Opponents say the money will give the IRS cash to harass taxpayers of all income levels and to add 87,000 new tax cops, larger than some national militaries.
Intensified IRS enforcement is a legitimate concern for high-net-worth and cross-border individuals. The IRS has also pledged more scrutiny and enforcement of cryptocurrency transactions and to wage war on America’s $600 billion annual tax gap (a recent poll showed that more than-thirds of Americans especially favor the latter). In just the past few weeks federal officials in Colorado filed for more than $26 million in Foreign Bank Account Reports noncompliance penalties against an Iranian-born naturalized U.S. citizen.
Long-time cutbacks
An immediate IRS juggernaut faces some obstacles.
Much of the $80 billion, for instance, is earmarked to improve IRS customer service and modernize technology; both are sorely needed amid record backlogs of tax return processing. The IRS is coming off years of underfunding and its thousands of new hires will increase the agency’s staff only fractionally when figuring in imminent – and major – staff attrition.
The Treasury Department has added that over the past decade the IRS has lost 40% of its agents who handle complicated returns of large businesses and corporations and who hunt wealthy tax evaders. One IRS source reportedly said that the agency had the same number of such agents that it had during World War II.
Still, President Biden has pledged that new enforcement efforts will target large businesses and individual taxpayers making more than $400,000 a year; the funds will pay for about 5,000 new enforcement agents to shift more audits off low-income taxpayers and their simpler returns.
Treasury Secretary Janet Yellen has also given the IRS six months to detail a plan on how to use that $80 billion. She too mentioned high-income earners and tax cheats.
Keep in mind their limits
Though no one can know how increased enforcement will work out, it does help to know what the IRS can and can’t do.
For example, to collect tax delinquencies from assets located outside of the U.S., collection avenues of the IRS may use Treasury technology to help locate a taxpayer; initiate an outbound Mutual Collection Assistance Request to a treaty partner; levy a domestic branch of a foreign bank; sue to repatriate assets; and attempt to revoke your U.S. passport. The IRS can use more than one of these avenues at once.
The IRS may also use Foreign Account Tax Compliance Act data from taxpayer filings to help find foreign assets but with some limitations on FATCA data obtained under a treaty.
Even with increased funding for enforcement, the IRS must play by rules. Your tax specialist needs to be able to handle these and many other issues of wealth, foreign income and tax enforcement. If we can help, please let us know.
About the Author
Alicea Castellanos is the CEO and Founder of Global Taxes LLC. Alicea provides personalized U.S. tax advisory and compliance services to high net worth families and their advisors. Alicea has more than 17 years of experience. Prior to forming Global Taxes, Alicea founded and oversaw operations at a boutique tax firm, worked at a prestigious global law firm and CPA firm. Alicea specializes in U.S. tax planning and compliance for non-U.S. families with global wealth and asset protection structures which include non-U.S. trusts, estates and foundations that have a U.S. connection.
Alicea also specializes in foreign investment in U.S. real estate property, and other U.S. assets, pre-immigration tax planning, U.S. expatriation matters, U.S. persons in receipt of foreign gifts and inheritances, foreign accounts and assets compliance, offshore voluntary disclosures/tax amnesties, FATCA registration, and foreign companies wanting to do business in the U.S. Alicea is fluent in Spanish and has a working knowledge of Portuguese.
Alicea is an active member of the Society of Trusts & Estates Practitioners (STEP), the New York State Society of Certified Public Accountants (NYSSCPAs), the American Institute of Certified Public Accountants (AICPA), the International Fiscal Association (IFA), a member of Clarkson Hyde Global, a world-wide association of accountants, auditors, tax specialists and business advisors and the International Advisory Experts (IAE).
Distinctly, in 2020, Alicea was awarded with a prestigious NYSSCPA Forty Under 40 Award. She was selected as someone that has notable skills and is visibly making a difference in the accounting profession. Alicea has also been recognized as a leading expert for Tax advice and she has been invited to join Advisory Excellence, as their exclusively recommended tax expert in the USA.
In 2021 and 2022, Alicea was the Gold and Silver Winner, respectively, of Citywealth’s Powerwomen Awards in the category USA – Woman of the Year – Business Growth (Boutique). Furthermore, Alicea is currently listed in the Global Elite Directory 2022, which is an annual exclusive directory of the world’s elite lawyers and outstanding wealth advisors advising ultra-high net-worth clients.
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