Biden Administration intends to enhance IRS enforcement against high earners and corporations

A significant focus on tax compliance and follow-up enforcement actions might be on the horizon. We previously reported that the Internal Revenue Service (IRS) Cyber Crimes Unit had indicated its determination to enhance enforcement activity connecting to income from cryptocurrencies. Those efforts are proceeding. However, if the Biden Administration has its way, cryptocurrency enforcement will simply be the tip of the iceberg when it pertains to enhanced tax enforcement.

Added financing sought by Biden Administration to increase tax enforcement.


President Biden has proposed increasing the Internal Revenue Service spending plan by $80 billion over ten years and to give the Internal Revenue Service fresh tools to detect tax evasion by high-earners and large firms. High income taxpayers are more likely to acquire revenue via businesses, capital gains as well as other non-wage resources and, according to the Internal Revenue Service, are more likely to hold their wealth in opaque structures. Nevertheless, the top one percent of earners have become far less likely to be examined over the last few years.


The United States Department of the Treasury (Treasury) has published The American Families Plan Tax Compliance Agenda, which discusses that "the President's compliance propositions are made to relieve existing injustices by focusing on premium evasion." Specifically, the Administration asserts that the new tax compliance program will boost audit prices only for individuals making $400,000 a year or more.

Administration representatives predict that the $80 billion investment in tax enforcement will increase $700 billion over a 10 years.

That new income is counted on to fund part of President Biden's suggested "American Families Plan," that includes propositions for universal pre-kindergarten, a government paid family and medical leave plan, programs to make child care more economical, as well as complimentary community college for all.

Treasury has discussed that the enhanced Internal Revenue Service funding offered in the American Families Plan would be used to update technology, improve data analytic techniques, as well as hire and train IRS representatives committed to intricate enforcement tasks. These financial investments would be coupled with a new reporting requirement that would provide the IRS an ability to validate earnings from non-wage resources.
This new reporting requirement aims to resolve a problem that more than half of taxes from sources like partnership as well as proprietorship earnings go unpaid. Both "the Government Accounting Office (GAO) and Internal Revenue Service concur that reinforcing third-party reporting is among the most effective methods to enhance tax compliance."

Therefore, the Biden Administration suggests requiring that banks include new data on tax reporting forms.

Specifically, financial institutions would be required to report gross inflows and outflows on all business and personal accounts including bank, loan and investment accounts.

Treasury explains that the suggested reporting criteria would extend to payment service providers that are not typical banks including payment settlement entities, international banks, as well as crypto asset exchanges and custodians.

When it come to cryptoassets, Treasury discussed that under the new program, "as with cash transactions, firm that receive cryptoassets with a fair market price of more than $10,000 would be reported on." This, Treasury explained, is necessary to lessen any motivation for companies to move earnings out of the new data reporting routine.

Crypto enforcement proceeds


Simultaneously with the Biden Administration's announcement of its tax compliance campaign, the DOJ Tax Division as well as the IRS have continued to increase stress regarding the taxation of cryptocurrencies. As a matter of fact, the Internal Revenue Service is using "John Doe" summonses to require cryptocurrency exchanges to produce customer details. Such a summons was provided to Kraken on 30 March 2021, and to Circle Internet Financial (which owns cryptocurrency exchange Poloniex) on 1 April 2021. These summonses require the recipient exchanges to determine customers that had at least $20,000 in purchase worth in any single year from 2016 to 2020. According to the Internal Revenue Service Commissioner Charles Rettig, "The John Doe summons is an action to allow the Internal Revenue Service to identify those that are neglecting to adequately report their digital currency purchases. We will implement the law where we locate systemic noncompliance or fraud."

Commissioner Rettig additionally explained that the summonses ought to encourage all crypto owners to follow tax regulations since such tools send a "clear message to United States taxpayers that the Internal Revenue Service is working to make certain that they are fully compliant in their use of online currency."


What's next?


Cryptocurrency tax investigations of entities as well as individuals are likely to be opened up as investigators sort through information provided according to the recently-issued subpoenas. The IRS may additionally inspect and possibly open investigations to evaluate tax returns for taxpayers who did not appropriately submit their crypto taxes throughout 2016-2020, especially for any taxpayers that obtained notices from the Internal Revenue Service concerning reporting criteria in 2019.

The impact of the Biden Administration's intent to fund some of its spending program with additional tax enforcement will reach much further than taxes on cryptocurrencies. The full $80 billion boost in Internal Revenue Service financing pursued by the Biden Administration might not be appropriated by Congress. However, the proposition to finance new spending programs with increased tax enforcement that would target high income earners as well as company entities is significant, and increased audits and enforcement is most likely imminent.


A 2019 Congressional Budget Office report discovered that the Internal Revenue Service's spending plan was reduced 20% between 2010 and 2018 and that those cuts caused a drop in assessments of both individual tax returns (a 46% decrease) and in audits of business tax filings (a 37% drop).

A remediation in funding, even one that fell short of $80 billion, is sure to enhance scrutiny of returns filed by high earnings earners as well as firms.
Although it will absolutely take time for this enhanced investing to work, the Biden Administration has made its objectives clear that it will seek to finance its policy propositions in part through increased tax enforcement.

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