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Trends in IRS audits – Part II

December 4, 2019

As we discussed in Trends in IRS audits – Part I, the IRS’s auditing power has been greatly diminished in the past decade and according to accountinTODAY, while most taxpayers envision Internal Revenue Service audits as intrusive investigations resulting in criminal sentences. Today, nothing could be farther than the truth.

  1. Most audits are done by mail.
  2. The main issue in audits: The EITC. and
  3. An alarming amount of people do not respond to an audit 
4. The most common IRS challenge to a return is not an audit  - The dreaded CP2000 Automated Underreporter notice is current three times more prevalent than an IRS audit. The CP2000 program utilizes IRS information returns (W-2s and 1099s) to match them against the filed return to discover discrepancies. A discrepancy may result in a CP2000 notice proposing additional tax (and possibly penalties) to the return. Most taxpayers do not realize (or care for that matter) that a CP2000 is not an audit. The CP2000 is less intrusive than an audit because the IRS is not allowed to examine the taxpayer’s books and records. However, for most taxpayers, the difference does not matter. The average amount owed for a CP2000 notice in 2018: $1,773.
 
However, there is good news for taxpayers: Even the mostly automated underreporter process has been cut back due to lack of IRS resources.  
 
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5. The IRS knows who to audit -The audit change rate was 89 percent for all taxpayer types in 2018. In fact, the audit change rate has been between 81 percent and 89 percent since 2005. When the IRS selects a return for audit, they pretty much know it will likely result in an adjustment.
 
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6. Field audits are rare, but expensive - In 2018, the IRS hit an all time low for the number of field audits conducted. Field audits are the most comprehensive, and are saved for complex taxpayers and situations — like businesses and tax avoidance schemes. The IRS has said that their audits have a great return on investment and reduction of audit results in large amounts lost to the U.S. Treasury.
The numbers support the IRS. In 2018, the average amount owed in a field audit was $85,400. Luckily for taxpayers, the IRS only conducted just under a quarter of a million field audits in 2018.
 
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7. Want your business to escape audit? Be an S corp or partnership - The IRS continues to struggle to audit S corp and partnership returns. This situation is likely to get worse as the more experienced IRS business auditors continue to retire. Audit rates for S corps and partnerships are both 0.22 percent or, put another way, 1 in every 455 passthrough entities were examined in 2018. It is no wonder that the number of S corporations have increased by 38 percent from 2005 to 2018 (3.5 million in 2005 versus 4.85 million in 2018).
 
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 Have a Tax Audit Problem?
 

 
You Should Immediately Consult With
An Experienced Tax Attorney
 
 

Contact the Tax Lawyers at

Marini & Associates, P.A. 

 
 for a FREE Tax Consultation 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

G20 Celebrates End of Offshore Banking Secrecy!

November 27, 2019

According to the OECD, on 26-27 November, the 10th Anniversary Meeting of the Global Forum on Transparency and Exchange of Information for Tax Purposes (the Global Forum) in Paris will bring together more than 500 delegates from 131 member jurisdictions for renewed discussions on efforts to advance the tax transparency agenda.
It Has Been Ten Years Since The G20 Declared The End Of Banking Secrecy, The International Community Has Achieved Unprecedented Success In Using New Transparency Standards To Fight Offshore Tax Evasion. 
Working through the Global Forum, 158 member jurisdictions have implemented robust standards that have prompted a tidal shift in exchange of information for tax purposes.

 
At the heart of this shift are thousands of bilateral exchange relationships now in place, which have enabled more than 250 000 information exchange requests over the past decade.
 
According to data in The Global Forum’s 10th anniversary report, in 2018 nearly 100 member jurisdictions automatically exchanged information on 47 million financial accounts, covering total assets of USD 4.9 trillion. In total, more than EUR 100 billion in additional tax revenue has been identified since 2009.

 
  
A recent OECD study shows that wider exchange of information driven by the Global Forum is associated with a global reduction in foreign-owned bank deposits in international financial centres (IFC) by 24% (USD 410 billion) between 2008 and 2019. The commencement of AEOI in 2017 and 2018 is associated with an average reduction in IFC bank deposits owned by non-IFC residents of 22%.

“The Global Forum has been a game-changer,” said OECD Secretary-General Angel Gurría. “Thanks to international co‑operation, tax authorities now have access to a huge trove of information that was previously beyond reach. Tax authorities are talking to each other and taxpayers are starting to understand that there’s nowhere left to hide. The benefits to the tax system’s fairness are enormous,” Mr Gurría said.

 
Almost all Global Forum members have eliminated bank secrecy for tax purposes, with nearly 70 jurisdictions changing their laws since 2009. Almost all members either forbid bearer shares– previously a longstanding impediment to tax compliance efforts – or ensure that the owners can be identified. Since 2017, members must also ensure transparency of the beneficial owners of legal entities, so these cannot be used to conceal ownership and evade tax.
 
Tax transparency is particularly important for developing countries. With support from the Global Forum, 85 developing country members have used exchange of information to strengthen their tax collection capacity. The Africa Initiative has helped African members identify over EUR 90 million in additional tax revenues in 2018, thanks to information exchanges and voluntary disclosures. To improve developing countries’ uptake of automatic exchange of financial information, the OECD-UNDP Tax Inspectors Without Borders Initiative today launched a pilot project aimed at supporting the effective use of the data.
 
“There is still a lot of work ahead of us,” said Zayda Manatta, head of the Global Forum Secretariat. “Members must continue efforts to ensure full implementation of existing standards and address the tax transparency challenges of an increasingly integrated and digitalised global economy.”
 
 
Have Unreported Income From Offshore Accounts?

 
 
Want To Know Which OVDP Program is Right for You?

 
 
Contact the Tax Lawyers at
Marini & Associates, P.A. 
 
 for a FREE Tax Consultation 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

Trends in IRS audits – Part I

November 22, 2019

According to accountinTODAY, most taxpayers envision Internal Revenue Service audits as intrusive investigations resulting in criminal sentences. Today, nothing could be farther than the truth. The IRS’s auditing power has been greatly diminished in the past decade. IRS audit resources have been reduced by 28 percent in the last decade and the audit rate has dropped from 0.9 percent in 2010 to 0.5 percent in 2018. In fact, the number of IRS audits in 2018 (991,168 audits) dropped almost in half compared to 2010 (1.735 million audits).

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Since 2010, the IRS has been tasked with doing more with less resources, but the reality is that the IRS cannot do more audits with less resources. The IRS audit data reveals 10 trends from the past decade that have become the new realities for current state of IRS audits.


1. Most audits are done by mail - This trend started with IRS reforms in the late 1990s. In 1998, just before IRS reforms, the service audited 47 percent of taxpayers by mail. In the past decade, IRS data shows that the service prefers the less-intrusive mail audit. Today, three out of four audits of individual taxpayers are done by mail — a ratio that has held since 2010. These audits usually challenge small amounts of credits or deductions on a return, and require only a mail response, with documentation, to an IRS central campus location.

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2. The main issue in audits: The EITC -Fifty percent of all individual audits involve a taxpayer who is claiming the Earned Income Tax Credit. IRS efforts to curb EITC errors largely rely on audits to hold a questionable EITC claim on a return. Politicians have criticized the IRS in the past for picking on low-income taxpayers, and the EITC audit rate is their main evidence. Compared to other taxpayer profiles, the IRS clearly has the propensity to address the EITC taxpayer more than other issues, even the small-business individual taxpayers.
 
3. An alarming amount of people do not respond to an auditThere is linkage here to the EITC mail audit. The Taxpayer Advocate reports that almost two-thirds of all mail audits go without response or are assessed by taxpayer default. That is, the IRS just assesses the additional tax without the taxpayer contesting the service’s determination. Only one in five taxpayers agree to their mail audit adjustment — and likely, from the data, they don’t understand how to appeal. This mess leads to many audit reconsiderations (i.e. an audit “re-do” request). Again, more question marks here for the targets of mail audits — the low-income population.
 
 
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To be continued in parts II & III. 
Have an IRS Tax Problem?
 
 
 
Contact the Tax Lawyers at

Marini & Associates, P.A. 
 
 for a FREE Tax Consultation 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

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