It’s a New Fiscal Year at the IRS: What Should We Expect?

September starts the regular season for both college and professional football. It also marks the end of the IRS’s fiscal year. With this comes a flurry of IRS guidance before the fiscal year closes and new initiatives announced for the new fiscal year (FY 2024). And just like the NFL, the IRS will be using enhanced data analytics to achieve stronger results.

Some significant upcoming initiatives and focus areas for the IRS include:

• More IRS Exams
• Increased Enforcement of Partnerships
• Emphasis on High-End Collection Cases
• Launch of Cost of Goods Sold Compliance Campaign
• New Programs to Tackle Ineligible Employee Retention Credit Claims

More IRS Exams

FY 2024 marks year two of increased IRS funding provided by the Inflation Reduction Act. The IRS will use the funding to continue its scrutiny of high-income taxpayers, large partnerships and corporations, and abusive tax promoters. 

Taxpayers with the highest compliance risk are being identified with the assistance of artificial intelligence and improved technology. Emphasis will be on digital asset noncompliance, Foreign Bank and Financial Account Reporting (FBAR) violations, labor brokers, Employee Retention Credit (ERC) and Fuel Tax Credit claims, and more.

Increased Enforcement of Partnerships

Later this fall, the IRS will open examinations of 75 of the largest partnerships (e.g., hedge and private equity funds, REITS, PTPs, law firms and others) and mail inquiry notices to approximately 500 partnerships with balance sheet discrepancies. 

Data specialists working together with partnership specialists have identified taxpayers in this category that warrant further review. A new special work unit focused on pass-through entities, particularly complex partnerships and S corporations, will also be established in the Large Business & International division.

Emphasis on High-End Collection Cases

IRS Collections will focus on taxpayers with income over $1M and more than $250,000 in outstanding tax debt. Revenue officers will soon be contacting at least 1,600 high wealth taxpayers to collect hundreds of millions of dollars of outstanding taxes.

 Launch of Cost of Goods Sold Compliance Campaign

The IRS is examining taxpayers and industries that have overstated their cost of goods sold to reduce taxable income. Such overstatements could be through inventory manipulation or valuation, overstatement of costs, or deduction of nondeductible items. Again, the IRS is pairing data specialists with subject matter experts to make sure entities with the highest compliance risk areas are identified and assigned for audit.

New Programs to Tackle Ineligible Employee Retention Credit Claims

The IRS continues to crack down on fraudulent Employee Retention Credit claims as well as promoters who pressured taxpayers to file ineligible claims. Taxpayers are encouraged to have their ERC claims reviewed by a trusted professional advisor. To support taxpayers that have claimed the ERC in error, the IRS will open two important programs this fall:

• Voluntary Withdrawal Program - Taxpayers that have filed improper ERC claims will be able to withdraw the amended returns with the ERC claim so long as the claim has not been processed and paid (even if under IRS audit or awaiting audit). Withdrawal would apply to the entire amended return that included the ERC claim. In the meantime, the IRS has added an ERC eligibility checklist to its website to help taxpayers determine whether they qualify for the credit.
• ERC Settlement Program - Taxpayers that have received an improper ERC payment may participate in a settlement program to repay the ERC payment and avoid penalties and future compliance action. The IRS is also evaluating options to address promoter contingency fees paid for out of the ERC payment.

Data analytics have helped the sports industry achieve positive results for years. Will the IRS have similar success with AI to pick the right cases in FY 2024? Stay tuned for an action-packed fall season from both the NFL and the IRS.