Here’s What You Can Expect From The IRS In 2020

The Office of the Treasury General for Tax Administration is responsible for auditing the IRS every now and then. For all that matters, even the IRS needs to be checked in order to make sure that it, too, is abiding by all the laws and the rules and regulations and is functioning efficiently. Recently, the Office of the Treasury General for Tax Administration released the 2020 Annual Audit Plan. This plan enumerates and elaborates on all the factors that it will be investigating and reviewing. The result of these changes will have ripple effects and then reflect on the way the taxes are handled. Let us take a look at a few of the changes that we can expect from the IRS after this audit.

IRA’s Early distributions

The IRA has a process dedicated to the relief of penalties from some taxpayers who have taken early distributions from their individual IRAs. Under audit number 201810029, it states that the Automated Underreporter Program needs to be reviewed. The reason is that apparently, the program is not being able to identify cases where the taxpayers owe a 10% additional tax on early withdrawals. It is assumed that the agency, due to this insufficient process, is missing out on some of the taxes. Therefore, if you have taken an early distribution, then you better revisit the ‘received relief’ categories.

Audits of virtual currency exchanges

Various cryptocurrencies are going through scrutiny. Under Audit number 201830034, the agency is going to take a closer look at virtual currencies such as Bitcoin. The agency will be evaluating the IRS’s efforts on reports of virtual currency transactions (US Tax Code, Titles 26 & 31) to ensure accuracy. The main issue here is that there is a lack of understanding of the definition of virtual currency and how the federal government views it.   Cryptocurrency is a far cry from real cash. It is, however, more comparable to stocks. It is advised that one should maintain proper records when indulging in the trade of virtual currency. The agency will soon step up its efforts to keep track of the sale and purchase of virtual currency with more accuracy. The IRS has resorted to sending out letters known as educational letters to taxpayers suspected to have not reported their full taxes or have not reported them at all. Word is in the air that the IRS may also work with criminal prosecutors to punish tax defaulters. Tracking profit or loss without sufficient records is not an easy task in the case of virtual currency. A rigid valuation can not be achieved with improper records. It is essential that you look through your files as soon as possible to remove any discrepancies. The IRS may revamp its efforts to collect dues on cryptocurrency. It is explicitly stated in the IRS Notice 2014-21 that cryptocurrency is not regarded as a currency but as a property by the United States government.

Earned Income Tax Credit Examination Strategy’s Effectiveness

The Office of the Treasury general, apparently assumes that there may be too much fraud of earned income tax credit. Audit number 201930012 will be looking into the effectiveness of the Earned Income Tax Credit Examination strategy of the IRS. The IRS has the Earned Income Tax Credit program dedicated to workers of low to moderate-income. The examination strategy of the program will be reviewed to determine the eligibility of taxpayers for a tax credit. There are many non-deserving taxpayers who have availed the benefits of this program.

The strategy of High-wealth/High-income non-filer

The audit plan wants to target both lower and higher-income strata. Both Audit numbers 201830036 and 201830037 ask the IRS to provide proof that it is addressing the nonfiler of high wealth/ high income effectively. It also asks the IRS to confirm that the new strategy of the nonfilers includes these mentioned entities or individuals. There are many individuals who earn a lot yet do not file, or even if they do, do not pay taxes. These individuals are the primary concern of the IRS that they wish to resolve via reviewing the high wealth/high-income non-filer strategy. The highest tax rate of 37% is applicable to individuals who earn more than $500,00 and couples who have incomes more than $600,000. 32% tax rate is applicable to individuals with incomes between $160,725 and $204,199 and couples with incomes between $321,450 and $408,199.

The precision of taxpayer entries labeled as “other’’

The Deputy Inspector General is of the opinion that the “other” category on various tax forms is dubious and can be misused. This is highlighted in Audit number 202040002 which explains that if taxpayers are given permission to enter tax credits without accurately defining them then it may result in fraudulent activities or misreporting. So it is recommended that you should stay away from the “other” category and pick a different category.