From the Tax Law Offices of David W. Klasing - What can be Gleamed from the IRS's Recent Release of a Five-Year Strategy for Civil and Criminal Tax Enforcement Practices?

IRVINE, Calif., Aug. 18, 2022 /PRNewswire/ -- In July 2022, the IRS published a report on its Strategic Plan for the years 2022 through 2026. The report features many lofty goals, including increasing service capabilities, consolidating enforcement efforts, recruiting a more advanced workforce, and modernizing existing infrastructure.

All these proposed efforts are based upon 80 billion of investment into the IRS from the federal government via the Biden administration and the Inflation Reduction Act, which comes with strings attached. To be clear, the IRS would not benefit from budget enhancements if the government did not believe they could make back that money and more through civil and criminal tax enforcement actions and other aggressive adjustments to strategy including the planned hiring of 87,000 IRS agents and huge investments into technology.

Therefore, many taxpayers are rightly concerned about the increased chance that they could soon face an audit or criminal tax investigation.

The IRS' five-year strategy was announced through Publication 3744, which can be found in its entirety on the agency website. The plan was developed by the strategic planning team within the Office of the Chief Financial Officer. According to the document, the report included input from IRS leaders and employees, advisory groups, and other key stakeholders, including the Department of the Treasury.

The strategy centers around four key "goals," as the report describes them: service, enforcement, people, and transformation.

The IRS suggests that the first goal of their five-year plan is to provide quality and accessible services to enhance the taxpayer experience. As the tax code becomes increasingly more complicated, so too does compliance. This affects those taxpayers in underserved community populations at a substantially higher rate. Not only are these taxpayers more likely to struggle with remaining compliant with the tax code, but they are also much less likely to actually obtain the benefits that are baked into the tax code for their own interests.

A critical aspect of the service goal is growing the IRS' digital service capabilities. More and more taxpayers and tax preparation professionals are growing to expect the government to shift to online services that represent a more accessible channel of communication and disclosure for taxpayers across the country.

According to a Comprehensive Taxpayer Attitude Survey Report from 2020, four of the top five IRS services that are most important to taxpayers are digital services. In their strategic plan, the IRS makes it clear that they intend to expand their outreach and service areas to account for the underserved by making use of developing technologies.

Though the current administration has poured funding into the IRS, the agency remains overburdened with a workload that is difficult to meet while using past strategies. All the while, the technological sophistication of tax evaders grows.

Among the IRS' responses contained in their five-year strategy is the plan to proactively identify current and emerging fraud schemes using real-time intelligence and analytics. This will involve the consolidation of fraud-related compliance efforts to streamline operations and better allocate resources.

The IRS' Office of Fraud Enforcement has also been investing in top-tier blockchain tracing and virtual currency analytics tools for compliance agents, such as the tracing software that the government began licensing from Coinbase last year. The new Virtual Currency Learning Academy provides all IRS personnel with unlimited access to various levels in training on cryptocurrency, blockchain tracing, and anti-money laundering compliance, as well as several other topics.

One of the less discussed issues plaguing the IRS today is the rising rate of attrition and retirement. More than 60% of the current agency workforce will be eligible for retirement within the next six years. According to data in the report collected by the Partnership for Public Service, the IRS' attrition rate is 7.3%, much higher than the average attrition rate across federal agencies of 5.8%.

To counter this, the IRS is implementing recruitment and succession planning strategies and lobbying for additional funding from congress to support federal hiring initiatives.

Simply keeping the workforce at an even level will not be enough to achieve the IRS' goals, however. The report emphasizes the IRS' continued reliance on cooperation with the tax community and international partners.

As its final goal for the next five years, the report stresses the importance of adapting the federal agency to facing new threats and challenges. These include developments in technology, a growing taxpayer base, and accounting for cyber threats.

Within the transformation goal, the report breaks the steps down into four key focuses: redesigning systems to maximize existing efficiencies, modernizing infrastructure, increasing digitalization, and improving data-driven decision making.

This is all centered upon the IRS' ability to keep its collection of personal and financial information secure against complex cyberattacks. The report projects that technological and security investments will help to ensure that the IRS has the capability to handle an increase on the roughly 1.4 billion cyberattacks that it mitigates every year.

Across the various goals that the report lays out, the common thread among them all is an increase in directed and strategic funding. When the federal government makes such a substantial financial commitment, it does not do so without expecting something in return. The government is relying on the increased capabilities of the IRS to close the tax gap through improved services and effective enforcement practices. This is the only way that the government will get back more money than what they will spend on obtaining these goals.

Therefore, it would be logical to assume that the IRS will do everything in its power to find tax debt to collect and act on it. Taxpayers should expect a significant uptick in IRS activity over the next five years that will affect many who have never dealt with such issues before.

If you are concerned about the possibility of an IRS audit or criminal tax investigation into you or your business and past filings, it is important to assess all possible options to avoid such a situation.

The federal government's voluntary disclosure programs provide an avenue for taxpayers who are aware of noncompliance in their filing history to come forward with additional information without being coerced into doing so through audit or criminal tax investigation. By using the voluntary disclosure option, many taxpayers avoid can avoid or reduce the penalties and fines that they might otherwise face if the government had to seek out the violations themselves.

However, voluntary disclosure may not be right in every situation. Firstly, if a criminal investigation is already underway, your decision to voluntary disclose will likely have no effect on the consequences and may even end up doing more harm than good. It is always important to discuss your situation with a seasoned Dual Licensed Criminal Tax Defense Lawyer and CPA, even if you made a genuine and honest mistake.

If you have failed to file a tax return for one or more years or have taken a position on a tax return that could not be supported upon an IRS or state tax authority audit, eggshell audit, reverse eggshell audit, or criminal tax investigation, it is in your best interest to contact an experienced tax defense attorney to determine your best route back into federal or state tax compliance without facing criminal prosecution.

Note:  As long as a taxpayer that has willfully committed tax crimes (potentially including non-filed foreign information returns coupled                 with affirmative evasion of U.S. income tax on offshore income) self-reports the tax fraud (including a pattern of non-filed returns) through a domestic or offshore voluntary disclosure before the IRS has started an audit or criminal tax investigation / prosecution, the taxpayer can ordinarily be successfully brought back into tax compliance and receive a nearly guaranteed pass on criminal tax prosecution and simultaneously often receive a break on the civil penalties that would otherwise apply. 

It is imperative that you hire an experienced and reputable criminal tax defense attorney to take you through the voluntary disclosure process. Only an Attorney has the Attorney Client Privilege and Work Product Privileges that will prevent the very professional that you hire from being potentially being forced to become a witness against you, especially where they prepared the returns that need to be amended, in a subsequent criminal tax audit, investigation or prosecution.

Moreover, only an Attorney can enter you into a voluntary disclosure without engaging in the unauthorized practice of law (a crime in itself). Only an Attorney trained in Criminal Tax Defense fully understands the risks and rewards involved in voluntary disclosures and how to protect you if you do not qualify for a voluntary disclosure.

As uniquely qualified and extensively experienced Criminal Tax Defense Tax Attorneys, Kovel CPAs and EAs, our firm provides a one stop shop to efficiently achieve the optimal and predictable results that simultaneously protect your liberty and your net worth. See our Testimonials to see what our clients have to say about us!

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Public Contact: Dave Klasing Esq. M.S.-Tax CPA, [email protected]

SOURCE Tax Law Offices of David W. Klasing, PC