Yearly Archives: 2022

The Government Accountability Office published a report on trends in IRS audit rates, audit results, and resources used for audits across individual taxpayer income levels. (GAO-22-104960)

With the IRS examining or auditing a decreasing proportion of individual tax returns, concern has been raised over "the potential for declining taxpayer compliance, as well as whether IRS is equitably selecting taxpayers for audit, as audit rates for higher-income taxpayers have decreased more than audit rates for lower-income taxpayers," the GAO said.

According to the report, from tax years 2010 through 2019, audit rates of individual income tax returns decreased for all income levels. On average, the audit rate for these returns fell to 0.25% from 0.9%. "IRS officials attributed this trend primarily to reduced staffing as a result of decreased funding," the report noted.

The Biggest Decrease in Audit Rates Was Found Among
Taxpayers With Incomes of $200,000 and Above!

"These Audits Are Generally More Complex And Require Staff's Review" While "Lower-Income Audits Are More Automated, Allowing IRS To Continue These Audits Even With Fewer Staff."

The GAO found that "generally" the IRS still audited higher-income taxpayers at higher rates than lower-income taxpayers. "However, the audit rate for lower-income taxpayers claiming the earned income tax credit (EITC) was higher than average. IRS officials explained that EITC audits require relatively few resources and prevent ineligible taxpayers from receiving the EITC," the report said.

From fiscal years 2010 through 2021, the majority of the additional taxes recommended by the agency came from taxpayers with incomes below $200,000. The report noted that additional taxes recommended per audit rose as taxpayer income increased.

"The average number of hours spent per audit was generally stable for lower-income taxpayers but more than doubled for those with incomes of $200,000 and above," the GAO said. 

So what happened to to the IRS Wealth Squad? 

According to Law360, Rep. Bill Pascrell, D-N.J., who chairs the House Ways and Means Committee's Oversight Subcommittee, said the GAO's report raises concerns about the national tax system and called for lawmakers to implement a more fair tax regime. Pascrell requested the report ahead of a subcommittee hearing on taxpayer fairness that representatives for the GAO are scheduled to testify at on Wednesday, May 25, 2022.

"I worry well-off taxpayers are not going to be pursued at the rate things are going."

While audit rates decreased most for higher-income taxpayers, the IRS still generally audits them at higher rates compared to their lower-income counterparts, the GAO said. Even though audits of taxpayers claiming the EITC resulted in higher amounts of recommended additional tax per audit hour compared with most income groups, the audit rate for those taxpayers didn't top that of the highest-income taxpayers, according to the report.

Have an IRS Tax Problem?

     Contact the Tax Lawyers at

Marini & Associates, P.A. 

for a FREE Tax HELP Contact us at:
www.TaxAid.com or www.OVDPLaw.com
or Toll Free at 888 8TAXAID (888-882-9243)

 

Read more at: Tax Times blog

According to Law360, the wealthiest 400 American families paid an average 8% tax rate on income earned from 2010 through 2018. The estimates, crafted by economists from the Office for Management and Budget and the White House's Council of Economic Advisers, included income from unsold stock in its computation of the average tax rate on the wealthiest families in the U.S. 

The White House made the case for increasing tax rates on capital gains income and dividends, as well as partially eliminating a tax break for inherited assets known as stepped-up basis, in order to close the gap between taxes paid by wealthy Americans and the less wealthy. The step-up in cost basis raises an heir's basis in an inherited asset so the heir doesn't owe capital gains on its appreciated value, and President Joe Biden has proposed to partly chip away at that advantage.

The estimates from the OMB and CEA economists relied on figures from the IRS and the Federal Reserve as well as Forbes Magazine, according to the White House. The wealthiest 400 families paid $149 billion in federal income taxes for 2010 through 2018, paid roughly $46 billion in state and local taxes during the same period and earned roughly $1.8 trillion in income.

The analysis noted that the estimates are lower than similar figures released by the Congressional Budget Office, the Joint Committee on Taxation and the U.S. Department of the Treasury. For instance, the JCT has estimated that tax rates for families earning at least $1 million is 26%, according to the analysis.

But these groups largely exclude unrealized capital gains from their computations, the analysis said. For people making $100,000 to $200,000 in income this year, the JCT estimated they'd pay a roughly 16% tax rate on earnings including income, employment and excise taxes. 

Have an IRS Tax Problem?

     Contact the Tax Lawyers at

Marini & Associates, P.A. 

for a FREE Tax HELP Contact us at:
www.TaxAid.com or www.OVDPLaw.com
or Toll Free at 888 8TAXAID (888-882-9243)

 

Read more at: Tax Times blog

 
According to Law360, it took the Internal Revenue Service nearly twice as long to close out appeals cases in fiscal year 2021 compared with the agency's progress in fiscal year 2018, according to data an IRS official shared Friday.

The speed at which the agency closed nondocketed appeals cases languished to 372 days on average in 2021, according to statistics that Andy Keyso, head of the Independent Office of Appeals, shared at the American Bar Association Section of Taxation's May meeting, held in person in Washington, D.C., and online. That rate, the agency's so-called cycle time, was 194 days on average in fiscal year 2018 for nondocketed cases, or those not filed in Tax Court.

"I'm troubled by the increase in cycle time, but I'm not defeated by it," Keyso said at the conference. "I believe that it is reversible, and we will reverse it here as we get people back into the offices."

January 2019 And The Coronavirus Pandemic That Rocked The Agency And The Country Beginning In March 2020. Keyso Said.

Have an IRS Tax Problem?

     Contact the Tax Lawyers at

Marini & Associates, P.A. 

for a FREE Tax HELP Contact us at:
www.TaxAid.com or www.OVDPLaw.com
or Toll Free at 888 8TAXAID (888-882-9243)

 

Read more at: Tax Times blog

According to Procedurally Taxing, in Seaview Trading, LLC v. Commissioner, the 9^th Circuit looked at the age-old tax question of when is a return is considered filed for the purposes of starting the assessment statute of limitations. 

In Seaview, the taxpayer, a partnership, believed it had filed its 2001 partnership tax return in July 2002, but the IRS had no record of the filing. In 2005, the IRS commenced an audit of the taxpayer’s 2001 return. The IRS agent conducting the exam notified the taxpayer that the IRS had no record of the taxpayer filing a 2001 partnership income tax return (Form 1065) and requested a signed copy. 

In response, the taxpayer faxed a signed copy of the return to the agent. The IRS later relied on the information on the faxed to propose an additional assessment against the taxpayer. The final partnership administrative adjustment (FPAA) proposing an assessment was issued in 2010, which was more than four years after the taxpayer faxed a signed copy of the return to the revenue agent. 

The Tax Court in TC Memo 2019-122 took a draconian view holding that the taxpayer did not “file” a tax return when it faxed a copy to the IRS agent. Furthermore, the Tax Court found that the 2001 return faxed to the agent did not even qualify as a “return” reasoning that the taxpayer did not intend to file a return when it faxed the return to agent because the taxpayer included a copy of the certified mail receipt showing a July 2002 mailing date. 

Since the tax return faxed to a revenue officer was not a tax return filing nor a return, the Tax Court found that the final partnership administrative adjustment (FPAA) issued in 2010 was not barred by the limitations period under section 6229(a).  The IRS had unlimited time to assess as no return was filed.    

The taxpayer appealed to the Court of Appeals for the 9^th Circuit. On May 11, 2022, the 9^th Circuit rendered its decision and reversed the decision of the Tax Court. A copy of the 9^th Circuit decision is located here.  

The Ninth Circuit stated that “Based on the ordinary meaning of “filing,” we hold that a delinquent partnership return is “filed” under § 6229(a) when an IRS official authorized to obtain and process a delinquent return asks a partnership for such a return, the partnership delivers the return to the IRS official in the manner requested, and the IRS official receives the return.” 

Since the Tax Court had concluded that the signed copy of the Form 1065 faxed to agent was not a return under the Beard test, See Beard v. Commissioner, 82 T.C. 766, 777 (1984), the 9^th Circuit went on to analyze this issue. The 9^th Circuit found that the Form 1065 that Seaview faxed to agent met all the Beard criteria and therefore was a return.   

The IRS may decide to limit its acquiescence of this decision to the 9^th Circuit and continue to fight this issue in other circuits.  It may decide to seek en banc review encouraged by the dissent or to seek Supreme Court review if it has an adequate conflict.  There will be more to come about this case as the IRS reacts to the decision and plots its path forward.

Have an IRS Tax Problem?

     Contact the Tax Lawyers at

for a FREE Tax HELP Contact us at:
www.TaxAid.com or www.OVDPLaw.com
or Toll Free at 888 8TAXAID (888-882-9243)

Read more at: Tax Times blog