Home Technology New IRS funding will target the wealthy, crypto and tech [Video]

New IRS funding will target the wealthy, crypto and tech [Video]

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New IRS funding will target the wealthy, crypto and tech [Video]

Concerns over a beefed up tax department are unfounded for most US taxpayers, according to a tax expert, who said the agency will likely focus on the wealthy and crypto investors with its newly allocated funds as well as necessary technological upgrades.

Nearly $80 billion of the Cut Inflation Act signed last week by President Joe Biden will go to various aspects of the IRS, a federal department that has seen many budget cuts and understaffing issues for the last decade.

More than half of the funding will accelerate the agency’s law enforcement efforts to shut down the tax gapsuch as hiring more law enforcement officers, providing legal support, and creating “investigative technologies,” measures that will expand its ability to audit wealthier individuals and corporations rather than to target ordinary Americans as some lawmakers have suggested.

“Nothing has changed,” Larry Pon, a California-based accountant who once worked at the IRS, told Yahoo Finance. “Accurately report all of your income and claim any deductions available to you and claim any credits available to you, as long as you qualify.

IRS to Target High Net Worth Individuals and Crypto Accounts

IRS Commissioner Charles Rettig, who was appointed by former President Donald Trump, as well as the Democratic Party, have repeatedly said new enforcement funds will not go to small businesses and families. earning less than $400,000.

“Salaried taxpayers like firefighters, construction workers, teachers, and police officers are among the docile taxpayers, given that their income comes from W-2 and 1099 forms,” ​​Rettig wrote this week in a exclusive forum on Yahoo Finance. “These resources are absolutely not intended to increase audit control over small businesses or middle-income Americans.”

Instead, the IRS would focus its audit efforts on high-income taxpayers, Rettig wrote.

“You want to be efficient and go where the money is,” Pon told Yahoo Finance.

WASHINGTON, DC - APRIL 07: Internal Revenue Service (IRS) Commissioner Charles Rettig testifies before the Senate Finance Committee on Capitol Hill on April 07, 2022 in Washington, DC.  Rettig testified about the 2022 filing season and the president's proposed budget request for fiscal year 2023 for the IRS.  (Photo by Kevin Dietsch/Getty Images)

WASHINGTON, DC – APRIL 07: Internal Revenue Service (IRS) Commissioner Charles Rettig testifies before the Senate Finance Committee on Capitol Hill on April 07, 2022 in Washington, DC. Rettig testified about the 2022 filing season and the president’s proposed budget request for fiscal year 2023 for the IRS. (Photo by Kevin Dietsch/Getty Images)

And the office’s recent audit trends have followed this pattern. In 2019, taxpayers earning more than $500,000 were 9.5% more likely to be audited than taxpayers who earn less.

“My personal observation is that many of the clients being audited once made over $1 million,” Pon said, noting that he has nearly 30 years of experience in tax services. “The IRS thought if we could find something, we could find it from them.”

There’s also a practical reason for the IRS to focus on the wealthiest Americans with specific types of income: efficiency. It is more efficient for the agency to recruit and train employees to perform specialized audits because they will quickly and accurately know what to look for.

IRS Form 1040 Virtual Currency Question

IRS Form 1040 Virtual Currency Question

The IRS has expanded its expertise in the virtual currency asset class, though its guidance on crypto is still sparse. However, experts believe the new funding will also focus heavily on this growing area.

The agency’s targeted intent should surprise no one. The IRS began asking taxpayers in 2020 about their virtual currency activity on the first page of Form 1040, the US personal income tax return. This question comes right after name, address, and social security number; and before eligible dependents or income.

Cryptocurrency “is going to be a hot topic,” Pon said.

The IRS is still using 60-year-old technology

However, there is a huge gap between what the IRS wants and what it can have. The system that the IRS still uses today is nowhere near blockchain technology.

“I worked for the IRS in 1984 and I’m sure they’re still using the same outdated computer system,” Pon said, “it was already old back then.”

In fact, the systems the agency uses to maintain individual and business account records “are the oldest major technology systems in the federal government,” according to the2021 Report to Congress from National Taxpayer Advocate (NTA).

Today, the IRS still uses the same technology from 60 years ago – a system called Individual Master File (IMF) that was primarily written in COBOL, a programming language created by IBM in the 1960s. Some 60 agency case management systems are generally not interconnected, according to the NTA report, so employees must transcribe or key information from one system and mail or fax it to others.

Janet Yellen, US Treasury Secretary, has asked the IRS to create a modernization plan in six months, while Erin Collins, the National Taxpayer Advocate (NTA), has repeatedly lobbied for technology upgrades. About $4.75 billion of the IRA is for technology upgrades.

“Outdated computer systems limit the functionality of online taxpayer accounts, prevent taxpayers from getting full details about the status of their records, and prevent the IRS from selecting the best cases for compliance actions,” according to the NTA report. “Although the IRS is making progress with its case management system, it still has a long way to go.”

Rebecca is a reporter for Yahoo Finance.

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