The Internal Revenue Service (IRS) increased its estimate on the Tax Gap in fiscal 2021 to $688B. For those of you who may not know, the Tax Gap refers to the amount of uncollected taxes due to the compliance issue of non-filed returns.
This new estimate is much higher than the ones we received in prior years. These higher numbers are primarily a result of the new technology afforded the IRS by the increased funding from the Inflation Reduction Act.
IRS Commissioner Danny Werfel said in a statement, “With the help of Inflation Reduction Act funding, we are adding focus and resources to areas of compliance concern, including high-income and high-wealth individuals, partnerships and corporations. These steps are urgent in many ways, including adding more fairness to the tax system, protecting those who pay their taxes and working to combat the tax gap.”
Let’s take a moment and parse his words. He said that they are, “adding focus and resources to areas of compliance concern, including high-income and high-wealth individuals, partnerships and corporations.” The operative word there is “including”.
This means that they’re coming after everyone, no matter what your level of income happens to be.
One of the ways that they’re doing this is by lowering the filing threshold on Form 1099-K from $20,000 annually to $600 at the end of this year. This means that the government will be informed about individuals earning money through internet sales in excess of $600 for the first time.
IRS officials have confirmed that this isn’t the only new tool in their updated bag of tricks. These increased AI Systems mean a substantial increase in them going after non-compliant taxpayers from all income categories.
Let me leave you with this.
I’m sure that many of you are asking how this could happen in the first place. How can a person not file their income tax returns for many years and not get caught?
The answer is that the days of not being caught have ended. In order to explain the phenomenon, let’s use an example.
JImmy Business-Owner began a business three years ago, and things didn’t go as planned. He was a regular W-2 employee prior to the inception of his enterprise who filed his returns annually and received refunds.
When it came time for him to file his first return as an entrepreneur, he was dead broke and didn’t have what was necessary to get his corporate and personal return completed properly. So he put it off. Three years later he’s yet to file a return.
Oddly enough, things at the Service normally work in three year cycles. Many have theorized that this is because of the three year Statute of Limitations on auditing a return. The Service has three years from the date a return is due to audit it before they would need to show cause to a Federal Judge which would increase the amount of time they would have to initiate an audit..
After three years of non-compliance, Jimmy’s file lands on the desk of a Revenue Office who looks at his tax history. Given the fact that he always received a refund in the past, the Revenue Officer decides to leave the file alone. Why would they contact him and work on the file so that they’d just end up giving him a refund?
At that point, Jimmy becomes an actual member of the Tax Gap. But things are obviously changing.
We’ve noticed an increase in the number of non-compliance cases coming to our firm. The IRS, given their enhanced computer systems, are finally going after people who don’t file their returns.
We’ve developed a system that helps entrepreneurs who find themselves in this predicament, that gets their returns filed without drawing further enhanced IRS Scrutiny. We’ve successfully handled hundreds of these cases in our past thirty-years of practice.
If this happens to be you, please contact us today. Your days of hiding may be over whether you like it or not. When it comes to dealing with the IRS, it’s always better to be proactive than reactive.
We’re all going to get through this. Let’s get through it together.
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Chris Amundson
President
Accounting Solutions Ltd.
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