Sunday, August 26, 2012

Tax Compliance and Enforcement

Tax Compliance and Enforcement by the IRS

Taxpayers will heavily consider how much it will hurt them in their decision making costs, however some think that the penalties are not big enough. The Tax Gap = The amount of income tax that should have been paid but wasn’t.  The gross tax gap was around $335 billion dollars in 2012. This initial difference between what IRS thinks should have been paid. Enforcement efforts got back about $55 billion. Most of the enforcement gain is from overstated taxes is from understated income and overstated deductions.

The biggest innovation was withholding from the IRS. 82% of income tax collections came through withholding. Computers then compare info with what is reported and the self-reporting. Uncertain tax reporting regime = Effort to respond to a major crisis to respond to tax shelters in the late 1990s. Mainly business tax shelters.

There has been lots of attention for Americans living outside the United States in recent years. See the following information on filling the new td f 90-22.1 2013 changes.

Schedule UTP: Business taxpayers can already report this. A UTP is a tax position for which a taxpayer is not certain. For example, they might mislabel a business expense as something wrong. Taxpayers put aside reserves in case they get challenged. Now the IRS also wants this information.  Corporate taxpayers over $10mil in assets, must file a schedule UTP that lists these uncertain position. Must provide the primary code section primarily involved in the transaction. It is a little more work for taxpayers. UTP will help the IRS prioritize issues in audit.Practitioners think this provides the IRS an audit roadmap. This might be considered privileged information.

Increased oversight in the tax preparation business: There is a movement toward more regulation of this industry. Offering financial products tied to the size of the refund. The IRS is worried about this.   “Culture of Non-Compliance” There will be registration and more training/regulation.b.    There will be taskforce to study return preparation software

Circular 230 is very specific ethical duties for tax practitioners. Makes the practitioner more involved with audits. They have to submit information that the IRS requests. Lots of rules for tax opinions.

Tax opinion is the opinion of a legal practitioner that some tax treatment is the correct one. This is like getting a PLR, but getting it from your lawyer.  Lots of rules for these opinions.


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