The IRS has announced a series of initiatives to ensure tax compliance among high-income taxpayers and owners of cryptocurrency. These new initiatives will be supported with the use of artificial intelligence technology, which will allow the agency to efficiently review tax returns and identify indicators of tax evasion and reporting noncompliance.
A particular point of interest for the IRS is the reporting of virtual currency. Presently, the agency determines cryptocurrency reporting compliance by ordering customer records from several cryptocurrency exchanges. A preliminary examination of digital currency exchanges revealed a 75% noncompliance rate for taxpayers reporting taxable events related to crypto. To combat this issue, the IRS has proposed a new tax-reporting form, 1099-DA, to help taxpayers determine if they owe taxes on their crypto activity. The agency also indicated non-reporting cases will be tagged for audits.
To improve compliance in these areas, the IRS will be looking at three different sets of tax filings with additional scrutiny:
- High income with tax debt
- Assets in foreign jurisdictions
- Partnerships and corporations
Initially, the IRS plans to intensify its targeting of high-income individuals with significant outstanding tax debt. Currently, the IRS focuses its enforcement efforts on approximately 1,600 individuals with income above $1M and outstanding tax debt of $250,000.
In addition, the IRS will evaluate filings of taxpayers outside of this initial 1,600 individuals who hold assets in foreign jurisdictions. That effort will be achieved through the expansion of audit selection and procedures for taxpayers who fail to report foreign bank accounts with a collective sum of $10,000 or more each year.
Finally, while the IRS is ramping up scrutiny for individuals, initiatives to examine large partnerships and corporations will also be expanding. At the end of September 2023, the agency began examining the balance sheets of 75 of the largest partnerships in the country to identify and investigate any discrepancies between end-of-year balances and the beginning balances of the following year.
IRS Commissioner Danny Werfel says, “This new compliance push makes good on the promise of the Inflation Reduction Act to ensure the IRS holds our wealthiest filers accountable to pay the full amount of what they owe.”
In light of the new IRS scrutiny, please feel free to reach out to the team of PYA tax professionals if you would like us to help you evaluate your tax and investment situations. You may reach us at the emails below or by calling (800) 270-9629.