Tax Enforcement and Collection – A New Priority
June 16, 2009
The tax environment is rapidly changing with taxing authorities bolstering their ranks to prepare for massive increases in audits and collection activities. President Obama has requested $890 million to support enhanced collection activities by the IRS over the next five years. The President’s goal is to close an estimated $345 billion “tax gap,” representing the amount of tax revenue that is lost by the government as a result of underreporting of income by individuals and businesses. Closing the tax gap will be crucial for the federal government to pay for other spending programs.
Collection initiatives are already underway with the IRS hiring thousands of new employees. There are currently a number of initiatives on the table to shut down offshore arrangements and eliminate tax breaks for companies with foreign operations. The President is advocating changing tax laws currently providing companies with a tax deferral on income earned overseas as long as that income is reinvested into the company’s foreign operations. This change would severely impact many multi-national companies. Other initiatives focus on increasing the cooperation and information from foreign financial institutions to uncover individual and business efforts to hide income through offshore arrangements. Unfortunately, many proposals aimed at closing abusive tax loopholes will also snare many small businesses and ordinary individuals.
The IRS recently announced that it will conduct an additional 2,000 employment tax audits annually over the next three years as part of its National Research Program. These audits will focus on worker classification, fringe benefits, officer compensation, and reimbursed expenses. The additional audits will begin as early as November 2009.
The IRS and Department of Justice also plan to increase criminal prosecutions of those failing to meet employment tax filing and payment obligations. For example, certain individuals in a business may be personally liable as a “responsible party” for nonpayment of employment and income tax withholding, or so-called “trust fund” taxes. In the past, a responsible party was typically hit only with a 100% civil penalty. Now, a responsible party, which may include a company’s officers and directors, may face felony charges for failing to collect and remit certain trust fund taxes. “A potential responsible party should be extremely careful right now when facing a trust fund penalty assessment situation, from both a civil and criminal perspective” explained Lance Gildner, who currently chairs Taft’s Tax Controversy and Litigation Practice Area.
At Taft, our tax attorneys have years of experience representing taxpayers in state and federal tax disputes, including criminal tax defense. We frequently assist clients, their accountants, and CPA firms during an audit process and stand ready to take a case through IRS Appeals and into state or federal courts if necessary. Please call one of our tax attorneys today if you need assistance in any tax matter or would like to receive additional information on any of the recent tax collection initiatives.
Collection initiatives are already underway with the IRS hiring thousands of new employees. There are currently a number of initiatives on the table to shut down offshore arrangements and eliminate tax breaks for companies with foreign operations. The President is advocating changing tax laws currently providing companies with a tax deferral on income earned overseas as long as that income is reinvested into the company’s foreign operations. This change would severely impact many multi-national companies. Other initiatives focus on increasing the cooperation and information from foreign financial institutions to uncover individual and business efforts to hide income through offshore arrangements. Unfortunately, many proposals aimed at closing abusive tax loopholes will also snare many small businesses and ordinary individuals.
The IRS recently announced that it will conduct an additional 2,000 employment tax audits annually over the next three years as part of its National Research Program. These audits will focus on worker classification, fringe benefits, officer compensation, and reimbursed expenses. The additional audits will begin as early as November 2009.
The IRS and Department of Justice also plan to increase criminal prosecutions of those failing to meet employment tax filing and payment obligations. For example, certain individuals in a business may be personally liable as a “responsible party” for nonpayment of employment and income tax withholding, or so-called “trust fund” taxes. In the past, a responsible party was typically hit only with a 100% civil penalty. Now, a responsible party, which may include a company’s officers and directors, may face felony charges for failing to collect and remit certain trust fund taxes. “A potential responsible party should be extremely careful right now when facing a trust fund penalty assessment situation, from both a civil and criminal perspective” explained Lance Gildner, who currently chairs Taft’s Tax Controversy and Litigation Practice Area.
At Taft, our tax attorneys have years of experience representing taxpayers in state and federal tax disputes, including criminal tax defense. We frequently assist clients, their accountants, and CPA firms during an audit process and stand ready to take a case through IRS Appeals and into state or federal courts if necessary. Please call one of our tax attorneys today if you need assistance in any tax matter or would like to receive additional information on any of the recent tax collection initiatives.
