A recent study published by the Internal Revenue Service (IRS) found that taxpayers who make $420,000 or more fail to properly report up to 21% of every dollar of income on their tax returns. Some of this, the agency notes, is the result of an honest mistake but it wants to go after the portion that is the result of evasion — those the agency refers to as “tax cheats.”
How does the IRS go after this money?
There are many tools the agency may use to look for tax evasion. Some of the more common include the following:
- Information Returns Processing System. The agency uses this software to compare the information sent in by employers to that sent in by individual taxpayers. It then flags any discrepancies for further review.
- Analytics. The agency likely uses additional software to dig into credit card transactions and other electronic information. In some cases, it may even use social media posts to help build a case against taxpayers it believes are guilty of tax evasion.
- Whistleblowers. Old fashioned, but reliable, the agency continues to rely on the reports of illegal activity from whistleblowers. These individuals reach out to the IRS with information or evidence of tax evasion by employers or fellow partners.
It is also important to note that tax law is a complex and ever evolving area of law. For example, beginning January 1, 2022, third-party payment apps like Zelle, Venmo and PayPal must report receipt by businesses for payments above $600 in aggregate. The prior threshold for reporting these types of transactions was $20,000.
This is just one example of how tax law changes can directly impact the information available to the IRS. If the proposal passes, the IRS will likely have more information to dig into when considering moving forward with an audit. Taxpayers who receive notification of an audit because of the fed’s use of these tools have options. The attorneys at Goldburd McCone are familiar with these issues and can discuss which option may be best for your specific situation.