The budget of the Internal Revenue Service has been cut significantly over the past few years, and that has resulted in changes to services rendered by the organization and a dramatic reduction in enforcement efforts. Over the past decade, reports Fox Business, the IRS has lost nearly 30,000 full-time positions, particularly in areas such as enforcement and criminal investigation. Other changes include updated collection priorities and procedures—changes which you need to know about and be prepared to communicate to clients. Here are some highlights:
Odds of an audit are falling. This may be seen as good news for some—the odds of an audit have been falling for years, and that trend is expected to continue. In 2018, the audit rate for those earning between $50,000 and $70,000 was 0.54%, while for those earning $1 million to $5 million it was 2.21%.
“Overall, the chance of being audited fell to 0.6%,” Nolo reported. “That means that only 1 out of every 167 returns was audited. This was the lowest audit rate since 2002, and the seventh annual decline in a row.”
Refunds could be delayed. Currently, according to Turbo Tax, 90% of returns filed electronically see refunds direct deposited within 21 days of e-file acceptance. That time period jumps to four weeks for mailed paper returns. For the fastest returns, clients should be encouraged to use e-filing and direct deposit. Also delaying refunds is a new fraud filter.
People who don’t pay could have their passports revoked. That’s right—pay your taxes or forfeit that trip to Guatemala. “The IRS may ask the State Department to exercise its authority to revoke your passport,” the agency notes. “For example, the IRS may recommend revocation if the IRS had reversed your certification because of your promise to pay, and you failed to pay.”
Private debt collectors are still a thing. The IRS has authorized four private agencies to collect some forms of outstanding, inactive tax debts, the agency warns. There is a formal process for outside debt collections that taxpayers should be aware of: the IRS first sends two letters, a Notice CP40 and a Publication 4518, then the private agency sends a contact letter with information on how to resolve unpaid debt. Both letters will contain a taxpayer authentication number to confirm the taxpayer’s identity.
Offer in Compromise rules have changed. All offer applications, the IRS notes, must be received on a Form 656; the updated form includes new low-income certification guidelines and instructions.
Collections are front-and-center for your clients—make sure you are armed with the most up-to-date information. And, of course, the easiest way to solve the problem, notes Accounting Today, is stay in compliance with IRS rules. “Tax professionals have always been crucial to help clients navigate the continual changes and options in IRS collection policy,” the site maintains. “This is true now more than ever.”