While improving tax compliance has always been a top priority for the Internal Revenue Service (IRS), an added sense of urgency has persisted throughout 2021 as the U.S. administration works to pass bills that would see trillions of dollars invested in social measures, infrastructure projects, and economic initiatives. “Over the past decade, the IRS has struggled to fully enforce the country’s tax laws due to a steady decline in its budget,” comments Philip L. Liberatore, CPA, a California-based company specializing in accounting, tax, and financial management services. “Given the administration’s ambitious social and economic agenda, ensuring tax compliance is a must if the necessary funds for these investments are to be raised. With that in mind, the government has proposed a number of measures designed to provide the IRS with the resources and powers to close the tax gap, which is estimated to total approximately $600 billion per year.”
While improving tax compliance is critically important for any government, the investment framework of the current administration relies especially heavily on the IRS doing its jobas efficiently as possible, saysPhilip Liberatore, founder and president of Philip L. Liberatore, CPA.According to Treasury estimates, personnel and technology constraints have resulted in the IRS being unable to collect 15% of taxes owed, and if the issues are left unaddressed, lost tax revenue could reach some $7 trillion over the next 10 years. To tackle tax evasion and improve services for taxpayers, the administration has put forward a number of proposals in the so-called American Families Plan, starting with $80 billion in additional funding for the IRS over the next decade. This would allow the agency to replenish its workforce, which has been steadily shrinking in recent years. With enhanced enforcement capabilities and more specialized auditors within its ranks, the IRS would be able to tackle sophisticated tax evasion and significantly improve collection, Philip L. Liberatore, CPAexplains.
Another proposal concerns information the IRS receives through third-party reporting, specifically data provided by financial institutions. The idea is to have them report total outflowsand inflows associated with an account when the amount exceeds a certain threshold so that the IRS can identify people who underreport their earnings. The push to improve tax compliance also includes a proposal to update the agency’s technology infrastructure: dating back to the 1960s, it is the oldest in use by a federal government entity. “Modernization funding would allow the IRS to address technology challenges and develop innovative machine learning that can be deployed to better identify suspect tax filings, for example, by comparing returns to similarly situated taxpayers and historical filings in a way that the current IRS ecosystemdoes not allow. These resources would also support efforts to meet threats to the security of the tax system, like the 1.4 billioncyberattacks the IRS experiences annually,” the Treasury said in a report published in May.
Finally, the administration aims to support the effort of the IRS to improve tax compliance through increased oversight of tax preparers and tougher penalties for individuals who commit or assist in tax evasion. This provision includes additional sanctions for the so-called “ghost preparers” – tax service providers who do not sign the tax returns they prepare. As the Treasury noted in its report, “While it will take time and substantial effort to achieve these goals, even modest progress would translate into a substantial increasein revenue. Treasury’s Office of Tax Analysis estimate that over the next decade, these changes would shrink the tax gap by about10%, raising $700 billion in additional tax collections over the next 10 years net of investments. The revenue raised is even larger inthe second decade after enactment at about $1.6 trillion.”
Based in La Miranda, California, Philip L. Liberatore, CPAspecializes in accounting services and financial guidance, focusing on personalized customer care to ensure maximum outcomes for its clients. The company, which was started in 1988 by veteran CPA Philip Liberatore, serves enterprises and individuals across Southern California with an unwavering commitment to the highest professional standards.
Philip L. Liberatore, CPA Discusses the Importance of Having an Adequately Staffed IRS: https://www.yahoo.com/now/philip-l-liberatore-cpa-discusses-120000090.html
Philip L. Liberatore, CPA Highlights the IRS Annual Dirty Dozen List of Scams Directed at Taxpayers: https://www.yahoo.com/now/philip-l-liberatore-cpa-highlights-110000304.html
Philip L. Liberatore, CPA Comments on the Implication of New Tax Provisions for Digital Assets Industry: https://www.yahoo.com/now/philip-l-liberatore-cpa-comments-100000735.html