Accounting
Former IRS commissioners warn of tax season delays
A group of former commissioners at the Internal Revenue Service is sounding the alarm about the thousands of layoffs at the agency in the midst of tax season.
Last week, the IRS
“I think it’s clear that, to any rational analysis, this makes no sense at all,” said John Koskinen, who was IRS commissioner from 2013-2017, in an interview with Accounting Today.
The IRS spent a year or more training probationary employees, who were hired after the IRS received more funding under the Inflation Reduction Act of 2022.
“A lot of these people have been there a year to two years, and are revenue agents and revenue officers, but also customer service,” said Koskinen. “And after a year of training with senior IRS people, they are now doing productive work on both customer service and filing. They can do more standard work, so the more senior people can handle a more complicated issue. So when you wipe them out, the more senior people then have to fill the gaps to the extent they can.”
Another former IRS commissioner, Chuck Rettig, who headed the agency from 2018-2022, pointed out in an email to Accounting Today that many IRS employees are military veterans.
“Almost 10% of current IRS employees (including ‘on probation’ new hires) are military veterans, more are proud members of the military reserves, many have volunteered to be deployed to war zones in defense of our country, numerous others are proud military families of active duty military personnel,” he wrote. “Many IRS filing season employees are spouses of current military personnel. A blanket reduction in force will disproportionally harm those who serve or have served our country and supported our military. I’m not advocating that every IRS employee remain in their current position, but IRS employees can be reskilled to help the IRS and taxpayers where such assistance is most needed.”
President Trump
“If they redesignate people away from investigatory activity to support the border, that will most certainly have an impact on the operations of the agency,” said Mark Everson, who was IRS commissioner from 2003-2007 and is currently vice chairman of tax consulting firm Alliant, in an interview late last month.
Koskinen, Rettig and Everson were among seven former IRS commissioners, along with Lawrence Gibbs, Fred T. Goldberg Jr., Charles Rossotti and Danny Werfel, who co-authored a
“If you were to ask the top chief executives in the world to name the best strategy to attack waste in their organizations and balance the books, there is one answer you would be very, very unlikely to hear: Take an ax to accounts receivable, the part of an organization responsible for collecting revenue,” the former commissioners wrote. “Yet the private sector leaders advising President Trump on ways to increase government efficiency are deploying this exact approach by targeting the Internal Revenue Service, which collects virtually all the receipts of the U.S. government — our nation’s accounts receivable division.”
Koskinen made a similar point. “I think it’s a high risk with limited rewards,” he told Accounting Today. “And the irony is this is an administration that claims to be worried about the deficit and claims to be looking for $2 trillion in savings. And it seems to be nonsensical to think that one good way to do that is to hamstring your revenue arm, your accounts receivable division.”
He spent 20 years in the private sector working on turning around failed companies. “The last thing we ever did was say, well, let’s deny funds to our revenue side, to the accounts receivable, and see how we do,” said Koskinen. “Our whole goal was to protect revenues and grow them, and so you protected accounts receivable, you protected sales. You wanted things to succeed and expand. To think that you’re going to help solve the deficit problem by collecting less revenue, I don’t know any business who thinks that’s the way to go. So I’m a little bit in disbelief with the timing and theory behind it. It just seems to me the net result of this is going to be fewer revenues are going to be collected than they would have otherwise.”
Tax season impact
He also believes the layoffs will have an impact on tax season. “What those new people do is free up the more experienced people who spend time training them to continue to pursue both improved taxpayer service and improved revenue collection,” said Koskinen. “It’s really going to hamstring the agency, and that’s assuming it doesn’t screw up the filing season. It just seems to me that this, together with the idea that people are going to go barefoot through the complicated systems in the middle of filing season, they just think that people don’t understand at all how the process at the IRS works and how important it is.”
He expects wait times to increase once again this tax season for taxpayers calling the IRS by phone for assistance after improvements last year. “We’ve gone from not being able to get through or having to wait 30 or 45 minutes to last year during the filing season you could get through in less than five minutes if you had a question,” said Koskinen. “And a chunk of those employees were brought in to expand the number of people answering the phones. I said at the time, it’s a no brainer. You want to improve phone service? Hire more people to answer the phones and train them. So a lot of these people have been hired over the last couple years and trained about answering the phones and answering the questions and being able to be helpful. And so when they disappear, it is not as if everybody else can answer phones faster. The phone service is going to decline.”
Approximately 3,500 of the layoffs are reportedly occurring in the Small Business/Self-Employed Division of the IRS, but the impact may go even further. “With the initial focus on terminating Small Business/Self-Employed Division (SBSE) probationary employees (generally, those hired within the past year), there should not be a significant impact on current filing season operations (which are managed by the Wage & Investment Division),” said Rettig. “Most SBSE examiners hired within the past year have likely been in training for much of that time which implies, there will not be much impact on current, open examinations. Much of that training is conducted by experienced examiners and IRS Counsel, who will now return to the field to assist in current examinations and ongoing litigation.”
Koskinen believes the impact will go beyond the Small Business unit, although he acknowledges improvements could be made. “Now, to the extent that some of this is in the Small Business division, they think they’re getting just people dealing with compliance, but a lot of those people are involved in customer service as well,” he said. “They’re not all revenue agents. It just appears to me this is being done by people who have no real understanding of how the process works and the risks that they’re taking. It’s not to say that over time, there aren’t things you could do to improve the operation. Hiring generally takes too long. The procurement system is too complicated, but a lot of private sector companies love that because they understand and they participate in the procurement system, because they know how it works, but you could smooth a lot of that out and speed it up. So I’m not saying you don’t need to improve operations. I’m just saying that firing a lot of people and disrupting the financing isn’t a really good way to go.”
Technology impact
The cutbacks could set back improvements in IRS technology that help with spotting tax evasion and noncompliance. “There will be a significant impact on the ability of the IRS to expand the volume of examinations going forward,” said Rettig. “However, the IRS is in a better position to identify potential noncompliance and conduct meaningful issue-focused examinations as a result of many important technological enhancements that have been implemented over the past five years. The IRS can now identify issues of noncompliance that would not have been remotely possible just a few years ago.”
The IRS has begun using artificial intelligence to detect tax cheats, but it still needs to rely on human beings to examine the returns.
“Fundamental technology upgrades and the onboarding of sophisticated data scientists have significantly enhanced internal and external IRS operating systems,” said Rettig. “The use of AI combined with enhanced Service-wide technology enhancements has greatly improved the ability of the IRS to select appropriate cases for examination and has greatly accelerated the pace of these examinations. However, these upgrades have not kept pace with ever-increasing responsibilities and challenges facing the IRS. Technology helps define the path forward but the ultimate resolution of an issue typically requires an experienced person to be involved. The IRS still needs specialized examiners and related resources to actually conduct examinations and determine deficiencies, as well as others to represent the IRS in administrative appeals and possibly litigation. All of these folks need constant training, and the more experience, the better for both the IRS and the taxpayer.”
The IRS will lose many of the employees it has spent the past few years training on its technology. “It’s one thing to say you’re a probationary employee, but in IT where they’ve been hiring people again, trying to improve the systems, you may have only been there a year or two, but you get hired because you’re an expert, because you know how to deal with all this,” said Koskinen.
The IRS has been able to use the extra funding it gained in recent years to improve its array of digital tools for taxpayers.
“Regarding taxpayer services, the IRS has launched more digital tools in the last two years than in the previous 20 years, including more than two dozen new features and enhancements to individual and tax professional online accounts; the launch of a business tax account; the release of 30 digital mobile-adaptive forms; the ability for taxpayers to receive their refund status via a conversational hotline; a mobile-friendly web tool for Where’s My Refund; and Direct File, which allows taxpayers to file directly with the IRS for free,” said Rettig. “On the horizon, enhanced IRS digital self-service options will provide a private-sector-like experience, allowing taxpayers to interact almost entirely from their mobile phones, in the language most convenient for the taxpayer.”
Cybersecurity and privacy issues
The layoffs could affect the cybersecurity of the IRS’s confidential taxpayer data, which is constantly under attack. “The IT people spend a lot of time not only making sure the systems run, but protecting the systems from cyber criminals,” said Koskinen. “Originally I was told we got pinged a million times a day, and it finally got to 4 million times a day. These are organized crime syndicates around the world. When I started, we were sending almost $6 billion a year in false refunds to criminals everywhere.”
The Security Summit partnership that the IRS started with the tax prep industry and state tax authorities while Koskinen was commissioner managed to reduce that amount of fraud, but it may be at risk now due to the layoffs.
“We did a partnership with the private sector and state tax authorities, and I think it’s under a billion now,” he said. “We cut the number of taxpayers adversely affected because somebody had already filed on their behalf by close to 90% now, but that was all because we got much quicker on our feet. That means there are still criminals out there trying to figure out how to defeat the whole system. So it’s not simple. A lot of work has gone into trying to make it as smooth and efficient as possible, and these actions are just totally contrary to those desires.”
The staffing reductions may now encourage fraudsters and identity thieves to cheat on their taxes or steal other people’s tax refunds.
“If you thought that suddenly the IRS is starting to be underfunded again, maybe there’s a good chance that they’re not going to be as quick on their feet as they used to be,” said Koskinen. “They’re literally pinging it millions of times a day. They’re continually trying to reverse engineer what stops, what gets through? If something gets through, that’s what they’ll do. We’ll send you more of those, because they’re very thoughtful and careful not to apply for huge refunds. They apply for a $3,000 refund or $4,000 or $1,500, but they apply for hundreds of thousands of them. They’re always looking for where the weakness is in the system, where they can get in and file for a $2,500 refund and get it done before [the legitimate taxpayer] files.”
Taxpayer privacy could be affected by the cuts. “You need to be exceptionally careful on data analytics and artificial intelligence for two reasons,” said Everson. “One, they’ve got to make sure that they maintain taxpayer privacy. And two, the rules that get embedded in these kinds of exercises can’t have some unintended consequence, and the degree to which they’re going to be relatively more thinly manned, if that’s what happens, then you can get people who aren’t looking at what the contractors are doing, or aren’t very clear on what the rules are delivering. So I do think that this task of deploying the technology gets harder in this environment.”
The IRS also worked to disrupt cybercriminals during Rettig’s term. “During my term as Commissioner (2018-2022), the IRS-CI Cyber Unit significantly disrupted Dark Web terrorist financing arrangements for Hamas, al Qaeda and ISIS, disrupted international child exploitation sites operating in the Dark Web, disrupted financial transactions involving international drug cartels, located concealed assets of sanctioned Russian Oligarchs and performed the largest digital asset financial seizure ($3.6 billion) in our country’s history,” said Rettig.
The reports that Elon Musk’s Department of Government Efficiency team has been able to access sensitive taxpayer data has also
“One of the things the agency feels most strongly about is protecting that data,” said Koskinen. “Employees can’t look at anybody’s return unless they have a clear reason to do so. I never saw anybody’s tax return.”
He acknowledged that some researchers can get access for specific purposes. “A lot of researchers do statistical analysis, which is helpful to the IRS,” said Koskinen.
The Biden administration also set its priorities for the IRS, Everson pointed out.
“What happened in the Biden administration is they made a policy pronouncement to go after the individuals that they felt had income of over $400,000, the higher-income individuals and large corporations,” said Everson. “Not all the research had been updated as to where the tax gap problem is. What I hope is that they take a complete, comprehensive update through the research arm on where the work should be done, and then redevelop the enforcement model. I’m not suggesting that they’re going to back away from everything, but I do think that focusing on those two areas is likely to be much diminished from where it was, in part because there won’t be the extra people coming on board because of the Republican majority view that they don’t want more enforcement. And also, in the world of partnerships, in the higher income or the corporations, it takes a great deal of training and experience before you’re effective. I just don’t think those people will be there.”
Tax refund delays
There is also a danger of delaying tax refunds, which will mean more angst for taxpayers.
“Over 70% of people get refunds, and so if you interfere with that, they’re not going to be pleased if you slow it down,” said Koskinen. “The agency spends a phenomenal amount of time focused on trying to make sure the highest priority is everybody’s treated fairly, the filing season goes smoothly, and people get answers to the questions they have that they need to make sure they’re filing returns correctly, and all of this is now disrupting that.”
Tax professionals will likely be fielding anxious questions from their clients, and the staffing cuts could mean the Practitioner Priority Service won’t be much help.
“In the bad old days, when customer service just declined because of the significant budget cuts, the Practitioner Priority line was an oxymoron,” said Koskinen, who heard complaints about it during a session with the American Institute of CPAs. “You can’t get through on the Practitioner Priority line any faster than if you’re just the public, because you have to have somebody there to answer the phone who knows what they’re doing.”
Staffing cutbacks would compound the problems with employees leaving the IRS due to retirement. “A lack of important staffing and funding may well impact the volume of examinations the IRS can conduct, but those selected for an examination will understand that a traditional tax examination by a modernized agency in a target-rich environment does not represent a significant challenge,” said Rettig.
“A high rate of attrition coupled with an aging workforce and a general hiring freeze from 2011 to 2018 is a significant concern in trying to determine the appropriate level of experienced staffing going forward. The current hiring freeze and terminations of probationary employees will serve to exacerbate these concerns. In the federal government system, it has historically been extremely difficult to compete with the private sector for top talent. Further, the recruitment, onboarding and training programs are somewhat cumbersome, at best. Most IRS employees come onboard with a sense of dedication to serving our country. It remains to be seen how current events might impact that dedication going forward.”
New IRS commissioner
The next IRS commissioner will have to decide what to do with the diminished staff and budget. Trump’s decision to
“There’s no paying much attention to precedent here,” said Koskinen. “Twenty-five years ago, Congress passed a statute for the first time, and the IRS commissioner was given a five-year term for two reasons. One is to encourage commissioners to stay longer than the usual two years or two and a half years for political appointees, so people would sign up for five. And the other reason was to take it out of politics to the extent you could.”
He noted that ever since 1998, every commissioner has been permitted to finish their term, even though some of it often lasted until the next administration. “It was just designed to make sure that people understood these are not political jobs in the formal sense,” said Koskinen.
The job of commissioner has traditionally been assigned to someone with management experience in running a large organization.
“This is the first time that a commissioner has not been allowed to finish,” said Koskinen. “And it’s an unfortunate precedent, because now, when you appoint a commissioner, the assumption will be you’re only going to be there for this president’s term.”
Congress may need to step in to safeguard the IRS and provide oversight. “Given the voluntary compliance nature of our system of taxation, Congress should start helping the IRS earn the trust and respect of the American people rather than attack it for political gain,” said Rettig. “For decades, the IRS has welcomed Congressional oversight at any level or degree desired.”
The Financial Accounting Standards Board met this week to discuss its projects on accounting for transfers of cryptocurrency assets and enhancing the disclosures around certain digital assets, such as stablecoins.
Processing Content
During Wednesday’s meeting, FASB’s board made certain tentative decisions, according to a
At a future meeting, the board plans to consider clarifying the derecognition guidance for crypto transfer arrangements to assess whether the control of a crypto asset has been transferred.
FASB also began deliberations on the
The board decided to provide illustrative examples in Topic 230, Statement of Cash Flows, to clarify whether certain digital assets such as stablecoins can meet the definition of cash equivalents. It also decided to include the following concepts in the illustrative examples:
- Interpretive explanations that link to the current cash equivalents definition;
- The amount and composition of reserve assets; and,
- The nature of qualifying on-demand, contractual cash redemption rights directly with the issuer.
FASB plans to clarify that an entity should consider compliance with relevant laws and regulations when it’s creating a policy concerning which assets that satisfy the Master Glossary definition of the term “cash equivalents“ will be treated as cash equivalents.
“I agree with the staff suggestion to look at examples,” said FASB vice chair Hillary Salo. “From my perspective, I think that is going to help level the playing field. People have been making reasonable judgments. I agree with that. And I think that this is really going to help show those goalposts or guardrails of what types of stablecoins would be in the scope of cash equivalents, and which ones would not be in the scope of cash equivalents. I certainly appreciate that approach, and I think it has the least potential impact of unintended consequences, because I do agree with my fellow board members that we shouldn’t be changing the definition of cash equivalents, and it’s a high bar to get into the cash equivalent definition.”
“I’m definitely supportive of not changing the definition of cash equivalents,” said FASB chair Richard Jones. “I believe that’s settled GAAP in a way, and we’re not really seeing a call to change it for broader issues. I am supportive of the example-based approach. The challenge with examples, though, is everybody’s going to want their exact pattern, but that’s not what we’re doing.”
The examples will explain the rationale for how digital assets such as stablecoins do or do not qualify as cash equivalents and give a roadmap for other types of digital assets with varying fact patterns to be able to apply.
“We really don’t want to be as a board facing a situation where something was a cash equivalent and then no longer is at a later date,” said Jones. “That’s not good for anyone, so keeping it as a high bar with certain rigid criteria, I think, is fine.”
Stablecoins are supposed to be pegged to fiat currencies such as U.S. dollars and thus provide more stability to investors. “In my view, while a stablecoin may meet the accounting definition established for cash equivalents, not every one of those stablecoins in the cash equivalent classification represents the same level of risk,” said FASB member Joyce Joseph.
She noted that the capital markets recognize the distinctions and have established a Stablecoin Stability Assessment Framework to evaluate a stablecoin’s ability to maintain its peg to a fiat currency. Such assessments look at the legal and regulatory framework associated with the stablecoin, and provide investors with information that could enable them to do forward-looking assessments about the stability of the stablecoin.
“However, for an investor to consider and utilize such information for a company analysis the financial statement disclosures would need to include information about the stablecoin itself,” Joseph added. “In outreach, the staff learned that investors supported classifying certain stablecoins as cash equivalents when transparent information is available about the entities at which the reserve assets are held. Therefore, in my view, taking all of this into consideration a relevant and informative company disclosure would include providing investors with the name of the stablecoin and the amount of the stablecoin that is classified as a cash equivalent, so investors can independently assess the liquidity risks more meaningfully and more comprehensively by utilizing broader information that is available in the capital markets and its emerging information.”
Such information could include the issuer, reserves, governance and management, she noted, so investors would get a more holistic look at the risks that holding the stablecoin would entail for a given company.
The board decided to require all entities to disclose the significant classes and related amounts of cash equivalents on an annual basis for each period that a statement of financial position is presented.
Entities should apply the amendments related to the classification of certain digital assets as cash equivalents on a modified prospective basis as of the beginning of the annual reporting period in the year of adoption.
FASB decided that entities should apply the amendments related to the disclosure of the significant classes and amounts of cash equivalents on a prospective basis as of the date of the most recent statement of financial position presented in the period of adoption.
The board will allow early adoption in both interim and annual reporting periods in which financial statements have not been issued or made available for issuance.
FASB also decided to permit entities to adopt the amendments to be illustrated in the examples related to the classification of certain digital assets as cash equivalents without the need to perform a preferability assessment as described in Topic 250, Accounting Changes and Error Corrections.
The board directed the staff to draft a proposed accounting standards update to be voted on by written ballot. The proposed update will have a 90-day comment period.
Senators introduced several pieces of tax-related legislation this week, including measures aimed at improving customer service at the Internal Revenue Service, cracking down on tax evasion and curbing the carried interest tax break, in addition to efforts in the House to repeal the Corporate Transparency Act.
Processing Content
Senators Bill Cassidy, R-Louisiana, and Mark Warner, D-Virginia, teamed up on introducing a bipartisan bill, the
The bill would establish a dashboard to inform taxpayers of backlogs and wait times; expand electronic access to information and refunds; expand callback technology and online accounts; and inform individuals facing economic hardship about collection alternatives.
“Taxpayers deserve a simple, stress-free experience when dealing with the IRS,” Cassidy said in a statement Wednesday. “This bill makes the process quicker and easier for taxpayers to get the information they need.”
He also mentioned the bill during a
“I’m happy to meet with the team … and do all I can to make it as good as you want it to be,” said Bisignano.
“My bill would equip the IRS with the legislative mandate to create an online dashboard so that taxpayers can monitor average call wait time and budget time accordingly,” said Cassidy. He noted that the bill would allow a callback for taxpayers that might need to wait longer than five minutes to speak to a representative, and establish a program to identify and support taxpayers struggling to make ends meet by providing information about alternative payment methods, such as installments, partial payments and offers in compromise.
“I know people are kind of desperate and don’t know where to turn for cash, so I think this could really ease anxiety,” he added. “This legislation is bipartisan and is likely to pass this Congress.”
Cassidy and Warner
“Taxpayers shouldn’t have to jump through hoops to get basic answers from the IRS — and in the last year, those challenges have only gotten worse,” Warner said in a statement. “I am glad to reintroduce this bipartisan legislation on Tax Day to ease some of this frustration by increasing clear communication and making IRS resources more readily available.”
Stop CHEATERS Act
Also on Tax Day, a group of Senate Democrats and an independent who usually caucuses with Democrats teamed up to introduce the Stop Corporations and High Earners from Avoiding Taxes and Enforce the Rules Strictly (Stop CHEATERS) Act.
Senate Finance Committee ranking member Ron Wyden, D-Oregon, joined with Senators Angus King, I-Maine, Elizabeth Warren, D-Massachusetts, Tim Kaine, D-Virginia, and Sheldon Whitehouse, D-Rhode Island. The bill would provide additional funding for the IRS to strengthen and expand tax collection services and systems and crack down on tax cheating by the wealthy.
“Wealthy tax cheats and scofflaw corporations are stealing billions and billions from the American people by refusing to pay what they legally owe, and far too many of them are getting a free pass because Republicans gutted the enforcement capacity of the IRS,” Wyden said in a statement. “A rich tax cheat who shelters mountains of cash among a web of shell companies and passthroughs is likelier to be struck by lightning than face an IRS audit, and Republicans want to keep it that way. This bill is about making sure the IRS has the resources it needs to go after wealthy tax cheats while improving customer service for the vast majority of American taxpayers who follow the law every year.”
Earlier this week. Wyden also
The Stop CHEATERS Act would provide the IRS with additional funding for tax enforcement focused upon high-income tax evasion, technology operations support, systems modernization, and taxpayer services like free tax-payer assistance.
“As Congress seeks ways to fund much-needed policy priorities and address our growing national debt, there is one common sense solution that should have unanimous bipartisan support: let’s enforce the tax laws already on the books,” said King in a statement. “Our legislation will make sure the IRS has the resources it needs to confront the gap between taxes owed and taxes paid – while ensuring that our tax enforcement professionals are focused on the high-income earners who account for the most tax evasion. This is a serious problem with an easy solution; let’s pass this legislation and make sure every American pays what they owe in taxes.”
Carried interest
Wyden, King and Whitehouse also teamed up on another bill Thursday to close the carried interest tax break for hedge fund managers that
Carried interest is a form of compensation received by a fund manager in exchange for investment management services, according to a
Under the bill, the
“Our tax code is rigged to favor ultra-wealthy investors who know how to game the system to dodge paying a fair share, and there is no better example of how it works in practice than the carried interest loophole,” Wyden said in a statement. “For several decades now we’ve had a tax system that rewards the accumulation of wealth by the rich while punishing middle-class wage earners, and the effect of that system has been the strangulation of prosperity and opportunity for everybody but the ultra-wealthy. There are a lot of problems to fix to restore fairness and common sense to our tax code, and closing the carried interest loophole is a great place to start.”
Repealing Corporate Transparency Act
The House Financial Services Committee is also planning to markup a bill next Tuesday that would fully repeal the Corporate Transparency Act, which has already been significantly
If enacted, the repeal would eliminate beneficial ownership reporting requirements, removing a transparency measure designed to help law enforcement and national security officials identify who is behind U.S. companies.
“This repeal would turn the United States back into one of the easiest places in the world to set up anonymous shell companies, something Congress worked for years to fix,” said Erica Hanichak, deputy director of the FACT Coalition, in a statement. “These entities are routinely used to facilitate corruption, financial crime, and abuse. Rolling back the CTA doesn’t just weaken transparency, it signals to bad actors around the world that the U.S. is once again open for illicit business.”
The Internal Revenue Service rarely penalizes taxpayers who have high balances in foreign bank accounts and fail to file the proper forms, according to a new report.
Processing Content
The
Taxpayers with specified foreign financial assets that meet a certain dollar threshold are also required to report the information to the IRS by filing Form 8938. Failure to file the form can result in penalties of up to $60,000. However, TIGTA’s previous reports have demonstrated that the IRS rarely enforces these penalties.
The IRS created an Offshore Private Banking Campaign initiative to address tax noncompliance related to taxpayers’ failure to file Form 8938 and information reporting associated with offshore banking accounts, but it’s had limited success.
Even though the initiative identified hundreds of individual taxpayers with significant foreign bank account deposits who failed to file Forms 8938, the campaign only resulted in relatively few taxpayer examinations and a small number of nonfiling penalties. The campaign identified 405 taxpayers with significant foreign account balances who appeared to be noncompliant with their FATCA reporting requirements.
The IRS used two ways to address the 405 noncompliant taxpayers: referral for examinations and the issuance of letters to them.
- 164 taxpayers (who had an average unreported foreign account balance of $1.3 billion) were referred for possible examination, but only 12 of the 164 were examined, with five having $39.7 million in additional tax and $80,000 in penalties assessed.
- 241 noncompliant taxpayers (who had an average unreported account balance of $377 million) received a combination of 225 educational letters (requiring no response from the taxpayers) and 16 soft letters (requiring taxpayers to respond). None of the 241 taxpayers were assessed the initial $10,000 FATCA nonfiling penalty.
“While taxpayers can hold offshore banking accounts for a number of legitimate reasons, some taxpayers have also used them to hide income and evade taxes,” said the report.
Significant assets and income are factors considered by the IRS when assessing whether taxpayers intentionally evaded their tax responsibilities, the report noted. Given the large size of the average unreported foreign account balances, these taxpayers probably have higher levels of sophistication and an awareness of their obligation to comply with the law.
TIGTA believes the IRS needs to establish specific performance measures to determine the effectiveness of the FATCA program. “If the IRS does not plan to enforce the FATCA provisions even where obvious noncompliance is identified, it should at least quantify the enforcement impact of its efforts,” said the report. “This will ensure that IRS decision makers have the information they need to determine if the FATCA program is worth the investment and improves taxpayer compliance.
TIGTA made three recommendations in the report, including revising Campaign 896 processes to include assessing FATCA failure to file penalties; assessing the viability of using Form 1099 data to identify Form 8938 nonfilers; and implementing additional performance measures to give decision makers comprehensive information about the effectiveness of the FATCA program. The IRS disagreed with two of TIGTA’s recommendations and partially agreed with the remaining recommendation. IRS officials didn’t agree to assess penalties in Campaign 896 or with implementing performance measures to assess the effectiveness of the FATCA program.
“From our perspective, TIGTA’s conclusions regarding IRS Campaign 896 are based, in part, on a misguided premise and overgeneralizations, including the treatment of ‘potential noncompliance’ as tantamount to ‘egregious noncompliance’ that warrants a monetary penalty without contemplating the variety of justifications that may exempt a taxpayer from having to file Form 8938,” wrote Mabeline Baldwin, acting commissioner of the IRS’s Large Business and International Division, in response to the report.
What that means for consumer loans
Checks and Balance newsletter: Of God and MAGA
Why software stocks, 2026’s market dogs, have joined the rally
Armanino adds Strategic Accounting Outsourced Solutions
New 2023 K-1 instructions stir the CAMT pot for partnerships and corporations
