Skip to main content

IRS Tells How It's Going to Use All That Money

The IRS released details Thursday on how it plans to use the $80 billion it received last year for improved operations, pledging to invest in new technology, hire more customer service representatives, and expand its ability to audit high-wealth taxpayers.

Some improvements have been long expected, such as bringing more paper-based systems online and answering taxpayers’ phone calls promptly (if they can find enough people that want to work for them). Others are more ambitious: continuing to explore ways to create a government-operated electronic free-file tax return system, for example. (After all, they've been trying for years to destroy the tax preparation business sector.)

One of the biggest areas of increased enforcement will be in the area of digital asset transactions and listed transactions.

“The IRS tracks many known, high-risk issues in noncompliance, such as digital asset transactions, listed transactions and certain international issues. These issues arise in multiple taxpayer segments, and data analysis shows a higher potential for noncompliance,” the tax agency wrote in its newly-released funding plan (pdf). Don't use just love government speak?

The digital assets they are talking about include convertible virtual currency, cryptocurrency, stablecoins, non-fungible tokens (NFTs), and other digital representations of value, according to the IRS website.

The IRS treats digital assets as property and requires taxpayers to report taxable gains or losses from digital asset transactions, just like they do buying and selling stocks.

Since it's difficult to identify the owners of digital assets, U.S. judges are allowing the IRS to use “John Doe summons” to seek the identities of taxpayers of interest.

After Congress passed the additional funding last summer, Treasury Secretary Janet Yellen directed the IRS to develop a plan outlining how the tax agency would overhaul its technology, customer service, and hiring processes. Her memo sent instructions to IRS leadership not to increase audit rates on people making less than $400,000 a year annually.

Officials are promising not “to raise audit rates on small businesses and households making under $400,000 per year, relative to historic levels.” The report says more than half of the new money—$45.6 billion—will be devoted to pursuing high-wealth individuals and companies.

“Given the size and complex nature of these tax filings, this work often requires specialized approaches, and we will make these resources available,” the report said. “We will use data and analytics to improve our understanding of the tax filings of high-wealth individuals.”

Whether that turns out to be true or not remains to be seen.