The IRS has been very busy over the past few weeks. The IRS has announced new programs to address tax abuse and plans to adopt new technology. The following is a summary of some of the things we can expect from the IRS.

TAX RETURN FILING PILOT PROGRAM

The IRS announced a pilot program which will be available for the 2024 tax filing season for individual tax returns. The program will enable taxpayers to electronically file their tax return directly with the IRS. In case you are asking yourself “don’t we already do that?”, we do, but we do it through the use of a professional (e.g. CPA), tax preparation service (e.g HR Block), tax preparation software (e.g. Turbo Tax) or, for those who qualify, the IRS’s Free File and VITA services. Except for the Free File and VITA services, all other tax return preparation methods have a cost to the taxpayer. The IRS pilot program would be absolutely free for taxpayers.

The IRS has said taxpayers participating in the Direct File program will have access to help from IRS employees who will provide technical support and provide basic clarification of tax law related to the tax scope of the program. The program will be available in only 13 states (Arizona, California, Massachusetts, New York, Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming). California, Arizona, Massachusetts and New York will be integrating their state income tax return into the IRS’s Direct File pilot program.

However, don’t fire your accountant just yet. The program will limit not only the number of persons who can participate in the program, but will also be limited to taxpayers: (1) whose only income is W-2 wages, social security, unemployment and interest below $1,500, (2) whose only deductions are the standard deduction, student loan interest and educator expenses and (3) whose only credits are the child tax credit, the earned income credit and the credit for other dependents. The program is still being finalized and the scope of the pilot program may be different from that stated herein.

The IRS’s purpose for limiting the availability/scope of the pilot program is to test the technology in a controlled setting and to determine the success of the integration with states’ tax returns. The pilot program will enable the IRS to make any necessary changes before a large-scale launch.

CHATBOT TECHNOLOGY

The IRS has expanded their use of chatbot technology in an effort to improve taxpayer service. The new chatbot service will answer basic questions for taxpayers who have received a notice advising them that income on their return has been under reported. These notices are sent to taxpayers when information reported by third parties (such as W-2s and 1099s) does not match the income reported on the return. The IRS plans to continue to add bot technology features in the future to assist taxpayers with more complex issues.

If you have ever tried to call the IRS, you know that getting through feels like winning the lottery. The use of chatbots will allow the IRS to respond to taxpayers quickly. However, taxpayer information is extremely sensitive and a chatbot presents the potential for inadvertent exposure of private taxpayer information. A taxpayer may not realize they are communicating with a “nonhuman”. There are serious privacy and ethical issues with the use of chatbots. I can only assume that the system has been designed to present packaged answers to general questions regarding a particular notice, without a taxpayer having to enter or the ability to provide any personal information.

EMPLOYEE RETENTION CREDIT

Due to the scams and questionable claims being submitted to the IRS regarding the employee retention credit, the IRS has halted the processing of the returns claiming the credit through the end of the year. See: https://magdaabdogomezlaw.com/irs-warns-employers-of-third-parties-promoting-employee-retention-credit-claims/ This pause on processing returns will enable the IRS to add more safeguards to prevent future abuse, and protect businesses from predatory tactics. The IRS is working with the Justice Department to pursue fraud fueled by the aggressive marketing of the availability of the employee retention credit by scammers.

In conjunction with the return processing moratorium, the IRS has instituted a withdrawal process for those employers who submitted an employee retention credit claim with the IRS and are concerned about the accuracy of the claim or their eligibility for the credit. The withdrawal process allows anyone who has filed a claim, and who has not yet received a refund, to withdraw the claim and avoid potential repayment of any refund received, along with penalties and interest if it is found that they were not eligible for the credit. The IRS, however, has announced that the withdrawal of the claim will not absolve those who willfully filed a fraudulent claim, or those who assisted in the preparation of a fraudulent claim, from a potential criminal investigation and prosecution.

AUDIT FOCUS

The IRS has announced that it is looking to hire 3700 revenue agents at more than 250 locations nationwide. The goal is to expand tax enforcement involving high-income earners (over $400,000 of income), partnerships, large corporations and promoters. These cases typically concern the most complex income tax returns filed by individuals, organizations and other entities, including those with extensive subsidiaries with operations of national or international scope.

The IRS plans to establish a special dedicated audit group for large or complex pass-through entities. The new employees which the IRS is hoping to hire will join this group. Through the formation of this audit group, and the hiring of additional specialized revenue agents, the IRS is hoping to fulfill its goal of restoring fairness to the tax system by shifting more attention onto high-income earners, partnerships, large corporations and promoters abusing the nation’s tax laws. Only time will tell whether these efforts succeed.