The IRS Has a New Five-Year Plan—Here’s What Taxpayers Need to Know

The Internal Revenue Service (IRS) recently released its strategic plan for the next five years. While the IRS’ Strategic Plan FY2022-2026 addresses a variety of topics, of most note to U.S. taxpayers is the IRS’ enhanced focus on enforcement.

How the IRS Plans To Reduce the Tax Gap Over the Next Five Years

One of the IRS’ four stated goals for the next five years is to “[e]nforce the tax law fairly and efficiently to increase voluntary compliance and narrow the tax gap.” The tax gap is the difference between what taxpayers pay and what they owe. To reduce the tax gap, the IRS will be devoting substantial additional resources to enforcement.

These additional resources include both personnel and new technologies. Moving forward, the IRS plans to employ additional auditors, examiners and investigators, and it intends to devote significant resources to “maintaining institutional knowledge of how to combat avoidance activities.” The IRS' Strategic Plan FY2022-2026 also indicates that the agency will be investing heavily in:

• “[A]dvanced technologies to analyze and identify patterns of non-compliance and facilitate appropriate case selection;” and,
• “[P]redictive analytics to provide potential recommendations for taxpayer actions or treatments using aggregated case data.”

By relying on new technologies, the IRS hopes to simultaneously enhance the scope of its enforcement efforts and reduce the amount of time it takes to resolve audits and investigations.

Where will the IRS be focusing its enforcement efforts? The IRS’ new five-year plan sheds light on this as well. Along with traditional enforcement priorities such as corporate tax fraud and offshore bank account disclosure compliance, the IRS also plans to prioritize enforcement in areas such as:

• Abusive tax schemes (i.e., fraudulent use of international trusts for tax avoidance)
• COVID-19 relief fraud
• Cryptocurrency tax fraud
• Employment tax compliance (i.e., Employee Retention Credit fraud)
• Refund fraud and identity theft

What Does the IRS’ Five-Year Plan Mean for U.S. Taxpayers?

What does all of this mean for U.S. taxpayers? Most significantly, it means that more U.S. taxpayers can expect to face IRS scrutiny over the next five years. This scrutiny will come not only from IRS auditors, examiners and investigators but also from the IRS’ new predictive and analytical software applications. These technologies will allow the IRS to both cast a broader net and more effectively identify targets for audits and investigations—and this could lead to an increase in the IRS’ success rate, which currently stands at “nearly 90%” in criminal cases. With this in mind, individual and corporate taxpayers alike will be well-served to reexamine their compliance efforts and take remedial action as necessary before the IRS comes calling.

Schedule an Appointment with Kevin E. Thorn, Managing Partner of Thorn Law Group

If you have concerns about facing IRS scrutiny, Kevin E. Thorn, Managing Partner of Thorn Law Group, can help. To schedule a confidential initial consultation, please call 202-349-4033, email ket@thornlawgroup.com or contact us confidentially online today.