Monthly Archives: June 2023

In July 2021, the House of Representatives, Committee on Appropriations, requested that TIGTA “review the IRS’s strategy to recruit and train employees to conduct audits of high earners and large businesses that underreport income as well as to collect taxes from taxpayers who have the ability to pay their outstanding debts, while also protecting taxpayer rights in the course of its enforcement efforts.” 

IRS Enforcement Function Full-Time Equivalent Employees Have Declined From Fiscal Years (FY) 2010 Through 2021
Due To Budget Decreases.

The devotion of considerable resources to the hiring surge also kept the agency's Large Business and International and Small Business and Self-Employed divisions from replacing employees lost to normal attrition, the report said. 

This reduction to enforcement function staffing levels has affected the total enforcement revenue collected by the IRS. This audit was initiated to evaluate the IRS’s strategy to recruit employees to conduct audits of high earners and large businesses. A separate report on the IRS’s examination training strategy will be issued later this fiscal year.

This reduction to enforcement function staffing levels has affected the total enforcement revenue collected by the IRS. This audit was initiated to evaluate the IRS’s strategy to recruit employees to conduct audits of high earners and large businesses. A separate report on the IRS’s examination training strategy will be issued later this fiscal year. 

The Inflation Reduction Act (IRA) provided the IRS with approximately $45.6 billion dedicated to enforcement activities. The IRS has initiated planning efforts to hire these employees, with the majority working in the IRS’s Large Business and International (LB&I) and Small Business/Self-Employed (SB/SE) Divisions. 

Reductions to IRS enforcement function staffing levels over the last decade have affected the total enforcement revenue collected. The IRS estimated that the gross annual Tax Gap for Tax Years 2014 to 2016 was $496 billion, and projects that for Tax Years 2017 to 2019, it will increase to $540 billion per year. A reduction in the number of enforcement function employees may affect the IRS’s ability to maintain sufficient audit coverage of entities and individuals contributing the most to the Tax Gap and limit its efforts to collect the taxes taxpayers acknowledge they owe but have not paid. 

The IRS Estimates That, With Existing Hiring Actions And Expected Attrition, The LB&I Division Could Hire Approximately 450 Positions And The SB/SE Division Could Hire Approximately 2,300 Positions Without Exceeding Their Authorized Staffing Levels.

However, the hiring surge of 10,000 employees to assist in reducing the tax return filing backlog for the Wage and Investment Division’s Submission Processing and Accounts Management functions has prevented the LB&I and SB/SE Divisions from hiring more employees to increase audits of high earners. Further, the LB&I and SB/SE Divisions have not maintained their authorized staffing levels with normal attrition and the hiring of new employees to replace those who have left the business units. 

A draft of the SB/SE Division’s FY 2023 hiring goals includes additional revenue agent hires. Increased examination hiring is also part of the LB&I Division’s overall hiring plan for FY 2023. The IRS issued the IRA Strategic Operating Plan in April 2023. The plan estimates that, through the end of FY 2024, there will be a total growth of approximately 20,000 employees funded by the IRA. Approximately 7,000 full-time equivalent employees are planned for enforcement business units. This report presents a pre-IRA snapshot of IRS enforcement hiring efforts.

However,the $20 billion in IRS funding cuts included in the debt limit deal reached by President Joe Biden and House Speaker Kevin McCarthy would be part of the largest-ever rescission of previously authorized funding, the chair of the House tax panel said Tuesday, May 30, 2023 in urging colleagues to support the bill.

However, The Hiring Surge Of 10,000 Employees To Assist In Reducing The Tax Return Filing Backlog For The Wage And Investment Division’s Submission Processing And Accounts Management Functions Has Prevented The LB&I And SB/SE Divisions From Hiring More Employees To
Increase Audits Of High Earners.

Further, the LB&I and SB/SE Divisions have not maintained their authorized staffing levels with normal attrition and the hiring of new employees to replace those who have left the business units. 

A draft of the SB/SE Division’s FY 2023 hiring goals includes additional revenue agent hires. Increased examination hiring is also part of the LB&I Division’s overall hiring plan for FY 2023. The IRS issued the IRA Strategic Operating Plan in April 2023. 

Now All of Those Aspirational Objectives to Guarantee
Fairness in The Tax System Are ALL GONE
as a Result of the Debt Limit Bill!

The $20 billion in IRS funding cuts included in the debt limit deal reached by President Joe Biden and House Speaker Kevin McCarthy would be part of the largest-ever rescission of previously authorized funding, the chair of the House tax panel said Tuesday, May 30, 2023 in urging colleagues to support the bill.

According to Law360, the level of Internal Revenue Service resources used for a hiring surge of workers to help address the agency's backlog of tax returns kept the agency from adding workers to audit more wealthy taxpayers, according to a watchdog report released Monday.

The devotion of considerable resources to the hiring surge also kept the agency's Large Business and International and Small Business and Self-Employed divisions from replacing employees lost to normal attrition, the report said. The LB&I and SB/SE divisions will house the majority of enforcement workers the agency plans to hire to audit high earners and large businesses, the Treasury Inspector General for Tax Administration's report, dated Thursday, said.

"As a result, LB&I and SB/SE division management have been unable to keep up with hiring new employees to replace those who have left their business units and will be unable to complete as many audits of high earners and large businesses as planned," the report said.

TIGTA's report said it was a snapshot of IRS hiring work before the Inflation Reduction Act, which provided the IRS $45.6 billion for enforcement as part of a nearly $80 billion funding increase.

The report advised the IRS' deputy commissioners for services and enforcement and operations support to work together to develop a plan to effectively manage changes in hiring volume and to improve IRS-wide communication channels to lessen the impact of large hiring surges. The agency agreed with both recommendations, according to the report.

Budget cuts caused the IRS' number of full-time equivalent enforcement employees to plunge 30 percent between the 2010 and 2021 fiscal years, the report said. 

The Treasury Inspector General for Tax Administration (TIGTA) has released an audit requested in July 2021 by the House Appropriations Committee and addressing the IRS' strategy to recruit and train employees to conduct audits of high earners and large businesses that underreport income. (Audit Report No. 2023-10-025)

The legislative mandate also wanted such employees to collect income taxes from taxpayers who have the ability to pay their outstanding debts, while also protecting taxpayer rights in the course of its enforcement efforts.

TIGTA pointed out that enforcement function full-time equivalent employees have declined by 30% from fiscal years 2010 through 2021. "This reduction to enforcement function staffing levels has affected the total enforcement revenue collected by the IRS," the audit said.

The audit made clear that the IRS was counting on the $45.6 billion "dedicated to enforcement activities" provided for in the Inflation Reduction Act of 2022. "The IRS has initiated planning efforts to hire these employees, with the majority working in the IRS' Large Business and International (LB&I) and Small Business/Self-Employed (SB/SE) Divisions," TIGTA said.

According to the audit, the IRS has estimated that the gross annual Tax Gap for Tax Years 2017 to 2019, will be $540 billion per year. "A reduction in the number of enforcement function employees may affect the IRS' ability to maintain sufficient audit coverage of entities and individuals contributing the most to the Tax Gap and limit its efforts to collect the taxes taxpayers acknowledge they owe but have not paid," the audit said.

The IRS also estimated that, with existing hiring actions and expected attrition, the LB&I Division could hire some 450 positions and the SB/SE Division could hire approximately 2,300 positions and stay within authorized staffing levels. However, the hiring surge of 10,000 employees to help tackle the tax return filing backlog "has prevented" these two divisions from hiring more employees to increase audits of high earners, TIGTA said. "Further, the LB&I and SB/SE Divisions have not maintained their authorized staffing levels with normal attrition and the hiring of new employees to replace those who have left the business units," the audit said.

The IRS Strategic Operating Plan, which was issued in April, estimates that through the end of FY 2024, there will be a total growth of approximately 20,000 employees funded by the IRA. Approximately 7,000 full-time equivalent employees are planned for enforcement business units.

Read more at: Tax Times blog

• Trump Did Not Win the Election?
• Obama-Care with its associated additional 3.8% Obama Care Tax make you feel like leaving the country?
• You're so sick of liberal Democrats trying to socialize the United States by taxing wealthy people?

• Or maybe you're a naturalized U.S. citizen or permanent resident who has prospered here, but would now like to move back the old country for retirement or to start a new  venture?

According to CNBC the top reason why Americans abroad want to dump their U.S. citizenship include:

So Where Do Wealthy People Move To
When They Expatriate From The US?

According to Henley & Partners, Private wealth migration trends look set to revert to pre-Covid patterns in 2023, with Australia reclaiming the top spot for net millionaire arrivals as it did between 2015 and 2019, and China suffering the biggest net outflows of high-net-worth individuals as it has since 2013. 

Notable exceptions are former top wealth magnets, the UK and the USA, according to the Henley Private Wealth Migration Report 2023, which tracks wealth and investment migration trends worldwide. 

Millionaire migration figures can be a telling real-time barometer for the health of an economy as wealthy people are extremely mobile and they therefore tend to be the first to move when the need arises. The countries that consistently attract affluent families through migration tend to be economically robust and usually have low crime rates and offer attractive business opportunities.

The top five destinations for net inflows of high-net-worth individuals in 2023 are projected to be

1. Australia, 
2. the UAE, 
3. Singapore, 
4. the USA, and 
5. Switzerland. 

On the flip side, the largest net outflows of millionaires are expected to come from 

1. China, 
2. India, 
3. the UK, 
4. Russia, and 
5. Brazil.

Australia is expected to attract the highest net inflow of high-net-worth individuals in 2023. This large influx of the world’s wealthiest is nothing new. Australia consistently attracts sizeable numbers of millionaires every year, mainly from Asia and Africa, but more recently also from high-income countries such as the UK.

Read more at: Tax Times blog

The U.S. Tax Court has held that an office manager at a physician's office was an employee, and additionally the physician did not qualify for employment tax relief pursuant to Section 530 of the Revenue Act of 1978 (T.C. Memo 2023-64, 5/18/2023).

Petitioner, Cardiovascular Center LLC, (CVC) operated a limited liability company with Dr. Frank Kresock as its sole member. CVC was treated as a disregarded entity for federal tax purposes, with its income and deductions reported on Dr. Kresock’s personal tax returns. Janine Smith worked at CVC with Dr. Kresock in his medical practice as the office manager and as a registered health information technologist. Four other CVC employees worked as medical assistants.

The employees were paid on a biweekly basis, with a cashier’s check signed by Kresock pursuant to an "employee" time sheet they signed. The timesheets were approved by Smith. The workers were paid an hourly wage. The workers often worked in excess of 70 hours, and were paid overtime as required. However, Smith was not issued regular paychecks. Rather, Kresock paid her personal bills, including mortgage payments on homes titled in her name, since Kresock and Smith resided together.

All of the workers were supervised by Kresock, and followed office procedures that were established by Kresock and Smith. None of the workers realized a profit or loss because of their job, and there were no formal employment contracts. The workers determined their own schedules, where they were permitted to arrive and leave, at any time.

CVC did not file or furnish Form 1099-MISC, Miscellaneous Income, or W–2, Wage and Tax Statement, reporting the compensation paid to the workers, nor did it file any associated employment tax returns (Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return, and Form 941, Employer’s Quarterly Federal Tax Return) for the tax periods at issue.

The Tax Court considers a worker’s employment status by applying common law concepts, which, in this case, included the following factors: 

1. the degree of control exercised by the principal over the worker; 
2. which party invests in the work facilities used by the worker; 
3. the worker’s opportunity for profit or loss; 
4. whether the principal can discharge the worker; 
5. whether the work is part of the principal’s regular business; 
6. the permanency of the relationship; and 
7. the relationship the parties believed they were creating. 

The Tax Court notes that no single factor is dispositive and that all facts and circumstances must be considered.

After consideration of the record and the relevant factors, the Tax Court concluded that the relationship between CVC and Ms. Smith, and CVC and the workers is best characterized as an employment relationship. According to the Court, the critical factor of whether CVC exercised control over the workers was met. Additional factors such as the investment in the work facilities used by the workers, the workers’ opportunities for profit or loss, whether the work was part of CVC’s regular business, and the permanency of the relationship all led significantly in favor of the finding that this was an employment relationship.

Section 530 provides relief from federal employment taxes even if the relationship between the business and the worker would otherwise require the payment of those taxes.

To qualify for the relief, a taxpayer must: 

1. not have treated the worker as an employee for tax purposes (historic treatment requirement); 
2. must have filed all federal tax returns (including information returns) with respect to the worker for periods after 1978 on a basis showing the worker's treatment as a non-employee (reporting consistency requirement); 
3. must have had a reasonable basis for not treating the worker as an employee, (reasonable basis requirement); and 
4. must not have treated as an employee any individual holding a position “substantially similar” to that of the worker in question (substantive consistency requirement).

The tax court found that CVC failed to prove the reasonable basis requirement, and failed to satisfy the second requirement of section 530 because it failed to file Forms 1099-MISC for the tax periods at issue.

The court therefore determined that CVC was not entitled to section 530 relief, and was liable for the federal employment taxes reflected in the notice of determination.

Read more at: Tax Times blog

On March 30, 2023 we posted Current US Resident Ordered To Repatriate $17.9M For FBAR Violations - What Next? where we discusssed that Isac Schwarzbaum had moved his assets offshore and sold his house in the wake of an $18 million penalty for failing to report foreign bank accounts, The court ordered  him to transfer enough money from his overseas accounts to cover the debt.

Now according to Law360, the U.S. District Court ruled on June 9, 2022 Isac Schwarzbaum, a dual U.S.-German citizen, fighting nearly $18 million in tax liabilities for hiding his foreign bank accounts cannot wait for his appeal to be decided before repatriating his assets to a U.S. bank account.

While Isac Schwarzbaum argued that repatriation would force him to liquidate his securities and cause him to realize significant transaction costs and capital gains, U.S. District Judge Beth Bloom said the mere possibility of those costs is not enough to constitute the irreparable harm Schwarzbaum needs to prove to be granted a stay.

Schwarzbaum also failed to provide the court with an affidavit supporting the veracity of the costs he believed he would incur by transferring his overseas assets to a U.S. bank, Judge Bloom said in her order.

Schwarzbaum asked for a stay in April, but Judge Bloom said that not only did Schwarzbaum fail to show he would be irreparably harmed by moving his money to a U.S. bank, but also failed to show that the U.S. government wouldn't be harmed by it.

While Schwarzbaum argued a stay would be brief and did not risk assets being lost, the government countered that a stay without bond would leave it "exposed to a complete and irreparable loss," according to the order. The government also told the court that Schwarzbaum's foreign holdings have decreased by $12 million since 2019, which Schwarzbaum attributed to the economic effects of the pandemic.

Judge Bloom said she agreed with the government that granting a stay without bond would leave the U.S. exposed.

Read more at: Tax Times blog