The IRS has announced two initiatives for the remainder of 2020, both of which target high income earners. The IRS will increase their efforts to find and audit high income earners who have not filed returns in past years. In addition, the IRS is targeting high income earners with pass-through entity income from partnerships and S corporations, as well as deductions for contributions to private foundations.
- 1- The Treasury General for Tax Administration (TIGTA) issued a report which estimated that $37 Billion in tax revenue has gone unreported and uncollected due to the non-filing of tax returns by wealthy individuals. The IRS believes that a large part of this unreported revenue is from independent contractors who do not have regular withholdings like W-2 wage earners. The IRS intends to assess penalties for late filing and late payments which add up to an additional 50% of the tax owed depending on how long the tax has been outstanding.
- 2 – From July 15 through September, 2020, the IRS will be sending audit letters to taxpayers with high income and pass-through income from partnerships and S corporations and/or a deduction for charitable contributions to private foundations. The IRS has identified 1,000 private foundations which may have engaged in prohibited transactions, such as making loans to disqualified individuals.
AICPA Recommends that the IRS Waive Penalties for 2019 Returns
On July 8, the American Institute of Certified Public Accountants (AIPCA) sent a letter to the IRS asking the IRS to waive penalties for late filing and late payments due to the ongoing disruption of the pandemic. They have recommended that the IRS waive the penalties through the extended deadline for the 2019 returns. The AICPA suggests that the pandemic has left taxpayers with little time and less access to data; taxpayers are simply overwhelmed and confused by quarantine, in addition to having a lack of funds to pay their taxes. These circumstances should be sufficient to show reasonable cause for the failure to file or pay statutes. In addition, the letter recommends that the IRS establish an expedited process for a taxpayer to ask for installment agreement to pay their tax bills over time. The process should offer reasonable time frames for payments given the pandemic environment which would “provide peace of mind to the millions of taxpayers making a good faith attempt at complying with their tax obligations.”
The AICPA also asks the IRS to suspend collection notices, liens, and levies given the extreme backlog of paperwork and mail that has piled up at the IRS during the pandemic shutdown, in addition to the already backlogged, unopened mail. The letter cited that many taxpayers will have responded to notices through paper correspondence that will most likely go unread by the IRS for months. “Currently, the IRS has a backlog of letters that is unmanageable. The IRS has rented tractor trailers and separate storage containers to store the mail received. It is estimated that it will take the IRS about one and one-half years to sort through the backlog of mail. In that time frame, taxpayers could inappropriately receive further collection notices or threatening liens or levies. The IRS must continue to provide taxpayers relief from collections activities.”
The AICPA letter to the IRS spotlights a growing concern that the IRS’s computers will continue to process notices for missing payments, underpayments, missing tax returns, matching notices, etc. which will be mailed out to taxpayers. With the current backlog of mail and the long wait times and failed attempts associated with calling the IRS, responses to notices will not be dealt with in a timely manner. This might lead to additional notices demanding payment on amounts not owed by the taxpayer with no effective mechanism for the taxpayer to communicate to the IRS and get the notice resolved.
We will continue to keep you updated. Should you have any questions, please don’t hesitate to reach out to your tonneson + co representative.