In a second testimony of the Internal Revenue Service (IRS) before the Senate Finance Committee. The committee’s Annual filing will include an inquiry into what the IRS has done the past tax season to find cheats. Senators work to make sure to clamp down on tax law, tax cheats, evasion, shady bookkeeping, and money-laundering schemes.
Mr. Crapo had expressed appreciation to the IRS for the new responsibility additional to Tax Collector and now administrator of economic impact payments was challenging and thanks Rettig’s staff for the hard work to make it happen. The IRS still experiences long wait times for call centers, Unemployment Insurance Benefit fraud issues, and correspondence with state agencies as the key tool towards those fraud issues. IRS appreciates the ability to administer the legislation that was passed. 62 million refunds have been issued in 2021 tax filing season. Business systems modernization, is important and needs adequate funding to replace legacy systems that are the foundation of all the IRS’ tools. Tax payers do not need to file an amended return if UIB income was already reported on tax filing.
Enforcement
Mr. Wyden asserts info in regards to Criminal investigations into tax fraud have halved, more low tax segment taxpayers get audited than high tax segment tax payers due to lower cost to do so. Published tax gap estimates use information between 2011-2013 gross tax gap of $441 billion. When observing other potential sources of gap, the gap may approach $1 trillion. Tax Gap estimates would not include any focus in respect into foreign source income, illegal source income, virtual currencies, nor do they include associated top %1 issues such as Pass through entities, and offshore accounts.
Tax Gap estimates do not include legal transactions authorized by code and relevant courts. This is the debate between Loopholes (failure of regulations to achieve goals), tax fraud (fraudulent activity no legal authority from code or courts), or tax compliance including tax planning management of tax liabilities including use of credits, deductions, expenses, such as RND tax credit or other utilization of legal provisions. Rettig also mentions database book citing high income tax payers are audited more than low income taxpayer receiving the EITC, 8% of high income taxpayer to %1 of EITC taxpayers.
When asked about statues or regulations to assist in enforcement; Rettig began on the importance of substantial information reporting, electronic filing of most returns, correctable error authority, return preparer regulation including need to regulate paid tax preparers, preclude ability to prepare returns. Tax code complicates every year, additional resources are necessary as tax codes normally add on top of other codes instead of being redefined and consolidated.
Policy private debt collection program (paused in 2015), has 600,000 backlog of cases; this program collects debts that are due but not being worked on by IRS. Half a billion dollar revenue, the last year it operated and a delay is in effect of new cases till end of September.
An inquiry was made into the Employee Retention Tax credit (form 5884-D, a qualified tax-exempt organization section 501(a), federally chartered corporation or federal, state, or local college, university, hospital or medical care entity) Section 2301 of the CARES Act is retroactive from enactment. Being available for small businesses who applied for Payment Protection Program and meet the criteria of an eligible employer, with significant decline in gross receipts, and tax exemption status.
Cryptocurrency
The testimony repeatedly came back to Cryptocurrency and when it is changed into fiat currency, and when occurrence of a taxable event and what is not a taxable event. The commissioner had mentioned 1099 form infrastructure could be sufficient for any tax laws applied to these specific assets, and maybe not all instances involving a cryptocurrency would be a taxable event, such as splits, transfers, etc. More than 8600 cryptocurrencies are observed by the IRS with almost a $2 trillion market cap.
The committee did mention a Cryptocurrency bill in the works and defining it for tax purposes. 2020’s 1040 form did include a question to increase visibility into possession of non-fungible tokens. IRS has allot of experience in regards to providing such guidance, IRS has good information in the criminal context of those working in the dark web with these cryptocurrency transactions. Senator Lankford asserts anytime money is traded for a cryptocurrency should be a taxable event due to cryptocurrency being property. The IRS commissioner replied that their are similarities to property, but also specific differences. Information reporting would be significant in any legislation, and that cryptocurrency regulation could start with cryptocurrency being a 1099 form type of taxable event, with different instances that may not be taxable such as splits and others.
IRS Operations
How IRS handles information so people can review info but not retain. Determined on individual circumstance. Largest data warehouses on the plant other than some organizations that do not have an identity. 13,000 IRS personnel are handling phone calls. IRS staff that were recently trained and had moved to other positions were pulled back into needed functions if they completed training and assignment sometime prior.
Outdated IT Systems, IRS IT system had to build system on system causing it to be less agile. Working groups were arranged within the IRS to determine ability and plan in regards for tax changes. Form 1040 2020 schedule Limited English Proficiency (LEP) was made to update how the IRS contacts individuals in their chosen language. Requested funding to the IRS would be put towards modernization efforts, independent office of appeals, training and onboarding of more IRS personnel including those for enforcement.
Congress decides every year the IRS budget in a discretionary manner, a more predictable budget would benefit IRS to be more consistent, effective and be able to strengthen enforcement. Consistent adequate and multi-year funding was a repeated point from the IRS commissioner. The IRS launches once law is in place, when legislation is pending, the IRS creates plans for if the legislation passes, when pending bills combine, plans and their relevant segments do as well.
The District court had ruled against the IRS in order to allow prisoners to receive stimulus checks. In regards to prisoners receiving stimulus checks; IRS delivered files to Bureau of Fiscal Services (BFS) for them to choose between check and debit card, debit cards were not supposed to be sent and a replacement effort was carried out by BFS. It was a separate issue for prisoners to have access to tax forms, over 200,000 simplified 1040 forms were made available to over 200 prison facilities to file taxes for incarcerated individuals.
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