In its Feb. 2 edition, The Signal published a letter to the editor written by Rick Barker. In his letter, Mr. Barker stated: “Now for the obvious fact: Extremely wealthy people are not who the IRS goes after now or would go after should they get that $80 billion more in funding over the next few years.”
Based on my nearly 50 years of experience as a tax practitioner, the IRS examines the tax returns of wealthy people, but lacks the resources to effectively do so. When I was a partner in a Big 4 accounting firm, I served many wealthy clients — including several billionaires. Based on my firsthand experience and published IRS data, in recent years the IRS has encountered much greater success auditing simpler returns, so it has collected more taxes from those taxpayers. That was not always the case, but is currently a consequence of significantly decreased IRS funding over the past decade.
A portion of the increased IRS funding approved by Congress last year will go to increasing the IRS auditing capabilities. The Treasury Department and IRS are focusing on expanding audit capacity in three areas. The first is targeting taxpayers who have an adjusted gross income exceeding $400,000. The second is pursuing large corporations, with an emphasis on multinational corporations. The final category is developing an effective audit procedures for partnerships that are employed by wealthy individuals, large corporations and Wall Street to structure tax avoidance arrangements. If the IRS is endowed with adequate resources to properly train IRS agents and implement effective processes, those newly targeted taxpayers will be much juicier low hanging fruit for the IRS.
Based on what I have read in professional publications and what I have heard in my conversations with senior IRS officials in the Examination Division, those are the areas where the IRS is focusing its attention. A paradigm shift within the IRS is starting, but Rome was not built in a day and those officials estimate it will take five to seven years to rebuild the needed capacity — unless, of course, Congress repeals the additional IRS funding.
Although it may not be obvious, those are the facts.
Jim de Bree