US Treasury Says IRS is Focused on Tax Evasion Targeting

Allen Barron, Inc.

The US Department of the Treasury has recently reinforced the progress on enforcement, specifically how the IRS is focused on tax evasion targeting and the targeting of high-income individuals and entities. The IRS has deployed Artificial Intelligence (AI) and state-of-the-art computer systems to review the often-complex returns of large corporations, foreign-owned corporations and partnership self-employment tax.

In addition,

The Large Corporate Compliance program (LCC) applies data analytics identify audit targets often possessing assets of $25 billion or more and/or a taxable income of more than $500 million annually. The program has deployed AI resulting in the start of more than 60 audits involving substantial assets and income, substantial transactions and international monetary activity.

This includes large foreign-owned corporations that are subsidiaries of foreign corporations involved in the import and distribution of goods who may improperly utilize transfer pricing to manipulate income and substantially reduce or avoid US taxation.

The IRS is focused on tax evasion targeting involving limited partnerships and associated “limited partners.” The partnership self-employment tax initiative focuses on high-income partnerships and individual partners, specifically identifying audit targets based upon under-reporting or actual tax evasion based upon Self Employment Contract Act or SECA taxes. The central question in these cases often involves “limited partners” in state law-based limited partnerships or investment focused partnerships who claim to have provided services to the partnership.

IRS efforts in this group of targets have netted more than 80 audits of high-income individuals and partnerships as well as a substantial victory in US Tax Court in Soroban Capital Partners LP v Commissioner. The decision agrees with the IRS requiring partners who “actively participated” to report partnership shares as net income that is subject to SECA taxation. 76 of the largest partnerships will be audited as a result of the application of AI alone.

The IRS targeted more than 1,600 US taxpayers who earn more than $1 million annually or have more than $250,000 in recognizable tax debt. The IRS reports it has already collected $38 million from more than 175 of these specific targets and has assigned more than 900 of the initial 1,600 targeted individual taxpayers to IRS revenue officers for audits and tax collection. The IRS reports the collection of $482 million so far from all millionaires targeted for tax evasion.

The IRS is hiring highly skilled accountants to pursue high-income individuals and entities at the rate of more than 250 per month since November of 2023. The IRS is focused on tax evasion targeting and audits and working to attract “top talent” to assist with these complex investigations.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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Allen Barron, Inc.

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