The Internal Revenue Service is offering new business tax accounts that companies can use to view and track their taxes, while making improvements to its online tax professional accounts, as it ramps up hiring of accountants to pursue large corporations and wealthy individuals who are dodging their taxes.
“The business tax account will allow businesses to check their tax payment history, make payments, view notices, authorize powers of attorney and conduct other business with the IRS,” said IRS Commissioner Danny Werfel during a press conference. “The first phase of this account will allow unincorporated sole proprietors who have an active Employer Identification Number to set up a business tax account where they can view their business profile and manage authorized users. Future improvements will add more features to this account.”
Over time the accounts will allow business taxpayers to check their tax payment history, make payments, view notices, authorize powers of attorney and conduct other business with the IRS. Future improvements will enable taxpayers to use their business tax accounts to view letters or notices, request tax transcripts, add third parties for power of attorney or tax information authorizations, schedule or cancel tax payments, and store bank account information.
The IRS is also improving the capabilities in the online Tax Pro Accounts.
“We are making continued enhancements to our tax professionals’ online accounts, helping them manage their active client authorizations on file with a Centralized Authorization File database, which stores the information on individuals authorized to act on a taxpayer’s behalf,” said Werfel. “Tax professionals can now view their clients’ tax information, including balance due amounts. Also, Tax Pro Account users can now withdraw from their active authorizations online in real time.”
Accounting Today asked if the IRS will be adding firm-wide access to the Tax Pro Accounts, as requested in a letter last week to the IRS from the National Association of Enrolled Agents (see story).
“We are providing enhancements to the tax professional online accounts,” Werfel replied. “And we engage very closely with the tax professional community, understanding what their needs are in order to do their job. They’re a critical part of the process, so we will continue to make enhancements to the tax professional accounts. We’re excited about some of the enhancements that we announced earlier today.”
Accounting Today also asked whether the IRS would be resuming the balance due and nonfiler notices that were paused during the pandemic amid the backlog at the agency, as the NAEA also requested in its letter.
“In terms of collections, the IRS is business as usual for tax year ’22,” Werfel responded. “Taxpayers received their initial notice and will see follow-up notices soon.”
Corporate compliance efforts
The IRS is upping its compliance efforts when it comes to the U.S. subsidiaries of foreign companies that distribute goods in the U.S. and avoid taxes, sending compliance alerts to approximately 150 subsidiaries of large foreign corporations.
“Prior to the Inflation Reduction Act, more than a decade of budget cuts prevented the IRS from keeping pace with the increasingly complicated methods the wealthiest taxpayers use to hide their income and evade paying their fair share of taxes,” said Werfel. “Inflation Reduction Act funding gives us the ability to take swift and aggressive action to improve compliance and close the tax gap. One way we are doing this is increasing compliance efforts on the U.S. subsidiaries of foreign companies who distribute goods in the U.S. and do not pay their fair share of tax on the profit they earn on their U.S. activity. These foreign companies report losses or exceedingly low margins year after year through the improper use of transfer pricing to avoid reporting an appropriate amount of profit. To crack down on this, the IRS is sending compliance alerts to approximately 150 U.S. subsidiaries of large foreign corporations to remind them of their U.S. tax obligations and to incentivize taxpayer self-correction.”
The IRS and the Treasury Department are emphasizing the impact of the extra funding they received under last year’s IRA, hoping to avert the threat of cutbacks by Congress.
“Following a dramatically improved 2023 filing season thanks to Inflation Reduction Act resources, the IRS has focused these resources on strengthening enforcement,” said Laurel Blatchford, chief implementation officer for the IRA at the Treasury, during the press conference. “The IRS engaged in a top-to-bottom review of enforcement efforts and made announcements in July and September on new initiatives to pursue high-income, high-wealth individuals who do not pay overdue tax bills and complex partnerships. Following these initial announcements, the IRS is turning to large corporations and has two new initiatives to announce to ensure large corporations pay taxes owed. They’re also providing an update on previously announced initiatives to ensure millionaires pay tax debts.”
Pursuing high-income taxpayers
Werfel noted that the IRS is also continuing to address high-wealth noncompliance through the expansion of its large corporate compliance program while hiring accountants who can help with the effort. The program uses data analytics to identify the largest and most complex corporate taxpayers with average assets of more than $24 billion and average taxable income of approximately $526 million per year for audit.
“Our Large Business and International Division will bring on new accountants in early 2024 to help LB&I start an additional 60 audits of the largest corporate taxpayers,” said Werfel. “These corporations are being selected using a combination of artificial intelligence and subject matter expertise in areas such as cross-border issues and corporate planning and transactions. Additionally, prior legislation repealed the domestic production activity tax break provision that provided a deduction for producing goods in the United States. Shortly after the repeal, the IRS received a wave of questionable amended returns and claims for tax benefits in the billions of dollars, with a significant portion of the filers taking the deduction for the first time. In response, the IRS launched a campaign to address noncompliance and review these high-risk claims.”
He noted that the efforts have been successful at protecting revenue, bolstered by a recent significant legal win after a court denied a refund claim based on a $1.8 billion deduction. “This will have a far-reaching impact on the IRS’s ongoing efforts in this space,” said Werfel.
He noted that the IRS would continue to prioritize and ramp up its efforts to pursue high-income, high-wealth individuals who have either not filed their taxes or failed to pay on time.
“These efforts are focused on taxpayers with more than $1 million in income and more than $250,000 in recognized tax debt,” he said. “When I last updated you, we launched an effort to focus on high-end collection cases based specifically on 1,600 wealthy taxpayers that owed hundreds of millions of dollars in taxes. Well, we are already seeing results: The IRS has collected $122 million in 100 of these already assigned 1,600 cases.”
He pointed to several recent cases.
“First, an individual was sentenced to a year in prison and ordered to pay more than $15 million in restitution for conspiring to defraud the United States,” said Werfel. “This individual was a former CEO who falsified millions of personal expenses and deductible business expenses, and financed construction of a 51,000-square-foot mansion, including expenses of interior and exterior construction costs, an outdoor pool and poolhouse and tennis, basketball and bocce courts. He also falsified millions of dollars for luxury vehicles, artwork, country club memberships and homes for his children.”
He also cited the case of the owner of the Sportsman Grille in Virginia, who pled guilty to skimming more than $670,000 from his business, filed false tax returns and spent more than $110,000 on himself and gambled away more than $500,000 with the Virginia lottery. And as a third example, he described the case of a California man who was sentenced to 54 months in federal prison for fraudulently obtaining $5 million dollars in COVID relief loans for a sham business, which he then spent on himself, including purchasing a Ferrari, a Bentley and a Lamborghini.
The IRS is also working to modernize its technology to improve taxpayer service, thanks to the extra funding.
“Previously announced improvements like the ability to respond to notices online are now benefiting tens of thousands of taxpayers,” said Blatchford. “The Treasury and the IRS are focused on achieving near-term service improvements and longer-term modernization.”
Werfel pointed out that during this year’s filing season, taxpayers were able to respond to 10 of the most common notices for credits like the earned income and health insurance tax credits online, saving them time and money.
“As of September 29, the IRS received more than 32,000 responses to notices via the document upload tool,” said Werfel. “Taxpayers are now able to submit mobile-friendly forms with the launch of three forms at the end of September. First, Form 15109, ‘Request for Tax Deferment,’ allows taxpayers to provide information related to their entry and exit from service and combat areas, contingency operations or hazardous duty stations. Second, Form 14039, ‘Identity Theft Affidavit,’ allows taxpayers to provide information related to the fraudulent use of their and/or dependent identity. And third, Form 14242, ‘Reporting Abusive Tax Promotions or Preparers,’ gives taxpayers the opportunity to provide detailed information about these tax schemes.”
“But this is not all,” he continued. “We also continue to expand the functionality of several online platforms. For individual accounts, the IRS continues to deploy enhanced capabilities for individual accounts, following the May launch of virtual assistants and live chat. At the end of September, we launched a feature so taxpayers can now validate their bank accounts and save multiple accounts, eliminating the need to re-enter bank account information every time they make a payment.”
The agency is also making strides in terms of document scanning, as demanded by Congress. “We continue to improve our capabilities to scan and e-file paper returns. As of October, the IRS scanned more than 1 million forms during the 2023 calendar year,” said Werfel. “This includes more than 480,000 Forms 940, 579,000 Forms 941 and more than 90,000 Forms 1040. I’m excited to see how digitalization will continue to improve the taxpayer experience.”
Taxpayer assistance in person
The IRS has also been using its extra funding to open more in-person Taxpayer Assistance Centers and offer local community visits. Since the passage of the IRA, it has opened or reopened 50 Taxpayer Assistance Centers, particularly those in underserved and rural communities.
“These centers have served about 235,000 more taxpayers in fiscal year 2023 than in fiscal year 2022, an 18% increase, and as of September 23, the IRS hired 745 employees to staff these Taxpayer Assistance Centers, a 31% net increase in staffing compared to where we were in fiscal year 2022,” Werfel noted. “We’ve also been setting up temporary Taxpayer Assistance Centers and holding community assistance visits at these locations for people who live far from our regular in-person centers so they can get the in-person help they need.”
The events have been held in seven locations:
- Paris, Texas;
- Altpeena, Michigan;
- Hastings, Nebraska;
- Twin Falls, Idaho;
- Juneau, Alaska;
- Lihue, Hawaii; and,
- Baker City, Oregon.
Werfel said the agency has also identified two additional locations to host community assistance visits: Ciales, Puerto Rico, and Gallup, New Mexico.
Plea for continued funding
The IRS hopes to be able to continue with its strategic plans and continue to receive funding, despite the current impasse in Congress over selecting the next speaker of the House and the looming threat of a government shutdown next month as appropriations legislation for next year remains stalled.
“We know that implementing such an ambitious plan is challenging,” said Werfel. “We understand that our challenges are made even more stark by ongoing budget uncertainty. That’s why it’s so important to continue reporting on the strides we’re making to modernize and improve our service, so that Congress and the American people know that we are investing our resources wisely, and in ways that will help everyone and ensure fairness of the tax system.”
The agency wants lawmakers in Washington to see how its planned upgrades and improvements are benefiting their constituents back home.
“The IRS needs to constantly balance the day-to-day running of our nation’s tech system with instituting longer-term improvements to service and technology that are going to pay dividends for taxpayers decades down the road,” said Blatchford. “That is why ensuring a sufficient annual budget for the IRS is so critical. Achieving the long-term goals of the Inflation Reduction Act resources has always been predicated on robust early budgets that fund basic operations like answering phone calls, including increases to ensure IRS annual funding keeps pace with inflationary costs. Delivering the service American taxpayers deserve this year and delivering the service American taxpayers deserve 10 years from now requires annual and long-term funding working in concert.”
The agency is concerned about possible funding cuts if Congress can’t agree on a budget for next year.
“We continue to make important progress implementing the strategic operating plan provisions made possible by the Inflation Reduction Act,” said Werfel. “Building on the success of this year’s filing season, we continue to put in place improvements in how taxpayers ensure fairness and compliance and improve technology. For these improvements to continue and accelerate, a consistent, reliable funding stream remains critical for the agency, both in our annual appropriations process as well as maintaining Inflation Reduction Act funding.”
Senate Finance Committee chair Ron Wyden, D-Oregon, reacted favorably to the IRS improvements. “Investing in the IRS is already paying off with better customer service for taxpayers and a real plan to crack down on the worst wealthy and corporate tax cheats,” he said in a statement Friday. “I’m particularly encouraged by the agency’s blueprint for using artificial intelligence, analytics and its own experts to identify 60 of the largest megacorporations for audits, and using its new resources to crack down on the tax games multinational companies use to avoid paying their fair share. I’ll continue to defend these enforcement efforts against the far-right’s effort to roll back these plans and protect corporate malfeasance.”