Successful representation of your clients this tax season hinges on a good understanding of new Internal Revenue Service rules and initiatives. Here’s a rundown of what you should expect for 2020.
Stress to clients that while other enforcement areas are lax, criminal investigation is not. Despite massive budget cuts and layoffs, the agency not slacking when it comes to criminal investigations and other tax enforcement initiatives. IRS criminal investigation now targets crypto currency users, notes one law firm, and the new chief of IRS Criminal Investigation is boasting about 2019’s 91% conviction rate.
There have been changes in collection procedures. The IRS has all manner of ways to make your clients pay, from third-party collectors to revoking their passports. As a pro, you should also be aware of options and any changes to process for the IRS’ offer in compromise program.
Form 1040 was streamlined, but the number of questions remained the same. While there are fewer schedules, the same amount of line items reported in 2018 are still required for 2020.
New question on Schedule 1. There is also a new question to the top of Schedule 1: has the taxpayer received, sent, sold, or exchanged any virtual currency? The question stems from Notice 2014-21 and Rev. Rul. 2019-24. Specifically, the question asks taxpayers, “At any time during 2019, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?”
Get to know the new streamlined filing compliance procedures. The IRS has a set of procedures for taxpayers who wish to certify that failure to report foreign financial assets and pay the taxes due on them was a mistake or at least not willful. The procedures, which apply only to individual taxpayers, include a certification and a civil examination.
The agency’s budget continues to be slashed, and that is affecting services across the board. The IRS has cut staffing by more than 15% since 2010 and funding has fallen sharply during the same period. The number of auditors has been cut by a third and investigations into those who don’t file a return have plunged from 2.3 million in 2010 to 360,000 in 2017. While that might make it sound like your clients are less likely to be audited or investigated—that’s true—it also means that investigations which do take place are sloppy or incomplete and that those seeking help will have to wait—or simply that no one ever even picks the phone up. It further means that those working at the agency may suffer from inadequate training, asserts the Center on Budget and Policy Studies, and that there have been delays in upgrading information technology and cybersecurity.
International taxes are subject to greater disclosure. The IRS has released a number of new forms dealing with international income, exemptions, and money movement. They include Form 8992 and a heavily-changed Form 5471, which is filed by U.S. owners of controlled foreign corporations. There are more questions on Schedule G and a new look for Schedule J and Schedule E.