The Internal Revenue Service (IRS) has just been given an unprecedented war fund as well as marching instructions to increase collection efforts, courtesy of Congress and President Biden.
The Internal Revenue Service will get an additional $80 billion in funds over the next ten years as a result of the Inflation Reduction Act. A little over half of that money is going to be allocated for greater enforcement, which will include the hiring of 87,000 additional agents.
Those in favour of this claim that it will increase government revenue by targeting wealthy individuals who cheat on their taxes. In point of fact, a significant number of law-abiding small business owners and high-net-worth people will discover that they are the targets of audits that are both onerous and expensive.
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What gives us this information?
Although both the proposed legislation and the current commissioner of the IRS have pledged not to go after anyone making less than $400,000 per year, it is practically impossible to adhere to this constraint when conducting audits of business entities.
Because a partnership typically has more than one owner and an S corporation frequently has more than one owner, the Internal Revenue Service (IRS) is likely to go after both of these types of companies regardless of the amount of money involved.
There is strong evidence that many owners of S corporations may be underreporting their income, and the commissioner of the IRS has already stated that the agency plans to increase its compliance efforts on partnerships. In addition, the commissioner of the IRS has stated that the agency plans to increase its compliance efforts on partnerships.
When the president and the commissioner declare that they won’t go after anyone making less than $400,000 a year, what they really mean is that they won’t go after any wage earners who report a yearly income of less than $400,000 on a W-2. This is the truth of the situation. It would appear that those who own businesses are exempt from this limitation.
If members of Congress were being truthful, they would refer to this legislation as the Business Disruption Act. People with a high net worth, business owners who are focused on growth, and strategic investors all need a strategy for dealing with the IRS tsunami.
Here are three things you can do to safeguard your safety.
Hire an Accountant Who Isn’t Afraid of the Internal Revenue Service
For many years, we have witnessed the Internal Revenue Service adopting a more adversarial posture toward some categories of taxpayers.
The Internal Revenue Service (IRS) has been using a harsh hand when it comes to legitimate tax incentive programs rather than making an honest attempt to root out actual tax cheats.
Consider conservation easements as an illustration in this regard. Throughout the last few years, almost every landowner who has utilized a conservation easement has found themselves the target of an audit in which the Internal Revenue Service (IRS) has disallowed the deduction.
The only option available to the owner of the property is to engage in an expensive and time-consuming legal struggle with the federal government. This strategy will only become more problematic when the organization gains access to further enforcement resources.
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IRS auditors are the equivalent of bullies on the playground in the realm of taxes. You need a CPA who won’t back down from a challenge when necessary.
You, as the client, should under no circumstances communicate with the Internal Revenue Service. Your certified public accountant is there to assist you with this.
If your tax counsellor gives the impression that they do not feel comfortable with this approach, that is a very strong indication that you need to make some adjustments.
Ensure that your certified public accountant is preparing your tax return in a manner that reduces the likelihood of you being subjected to an audit.
There is no point in putting yourself ahead of the competition even though there is a possibility that you won’t be able to evade an audit forever.
When preparing your tax return, your tax preparer will make dozens or even hundreds of decisions, some of which could raise potential red lights with the Internal Revenue Service and others will decrease those flags.
The vocabulary and approach that are used make a difference, although technically speaking, all of these choices are legal ones.
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Inquire with your certified public accountant (CPA) about the particular steps they are doing to reduce the likelihood of an IRS audit affecting you.
You want to work with someone who can provide you with a detailed plan and who exudes a level of self-assurance that gives you a reason to believe they can carry out the plan.
This shouldn’t mean that you don’t take advantage of any of the tax deductions to which you are entitled.
Over the years, I’ve spoken with far too many new clients who have admitted to me that they’ve been intentionally avoiding specific deductions because they believed that claiming those deductions would raise the likelihood that they would be subject to an audit.
If you don’t take advantage of tax credits and deductions, it’s the same as giving extra money to the government in Washington, DC.
There is no viable tax scheme that takes this tradeoff into account. Please go to rule number one if your tax expert is advising you to do this.
