IRS Using Funding and New Technology to Target FBARs and Others

Recently, the IRS has unveiled a comprehensive initiative aimed at restoring fairness to the U.S. tax system. Among the key highlights of this initiative are increased audit scrutiny for high-net-worth taxpayers, large partnerships, and individuals with suspected nonreporting foreign bank accounts. To support this undertaking, the IRS is set to hire 3,700 employees nationwide.

First, the IRS will continue to scrutinize Foreign Bank and Financial Accounts (FBAR) violations. The FBAR is an annual report that U.S. taxpayers must file with the Treasury Department to disclose foreign bank and financial accounts. The IRS uses FBARs to identify taxpayers who might be using foreign accounts to evade taxes. Failure to file an FBAR can result in substantial civil and criminal penalties. In recent years, the IRS has intensified its enforcement of FBAR violations, and this trend is expected to persist.

Another focus will be expanding compliance efforts concerning large corporations and complex partnerships. Specifically, the IRS will intensify its efforts on taxpayers with a total positive income exceeding $1 million and a high balance due. Additionally, the IRS has added programs to bolster its ability to audit large partnerships and ensure tax compliance among these entities. This expansion will use AI to facilitate collaboration between data scientists and law enforcement, enabling the identification of potential compliance risks within the records of these large partnerships.

Additionally, the IRS is expanding its Virtual Currency Compliance Campaign, an initiative aimed at addressing noncompliance related to the use of virtual currency. This campaign includes educational letters sent to virtual currency owners, urging them to settle back taxes and file amended returns. It’s part of the IRS’s broader efforts to ensure tax fairness. Virtual currency is considered a digital asset with real currency equivalence, and the campaign’s expansion is significant, particularly for international taxpayers who use virtual currency as a hedge against local inflation or for cross-border payments.

Lastly, the construction sector is facing increased scrutiny regarding 1099 fraud. The rise in payroll tax evasion and worker’s compensation fraud within the industry has garnered attention from the Financial Crimes Enforcement Network (FinCEN) and the IRS Criminal Investigation division. These organizations have been actively addressing fraud in the construction sector, highlighting schemes involving payroll tax evasion, workers’ compensation fraud, and the misuse of shell companies. Deliberate misclassification of employees as subcontractors (often referred to as “1099” workers) to avoid payroll taxes and workers’ compensation insurance is considered a form of tax fraud that affects tax revenues and honest employers. The United Brotherhood of Carpenters (UBC) is actively working to combat tax fraud within the construction industry.


Disclaimer: Hone Maxwell LLP articles and blogs are not intended as legal advice. Additional facts, facts specific to your situation or future developments may affect subjects contained herein. Seek the advice of an attorney before acting or relying upon any information herein.

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