The estimated annual tax gap is $450 billion. With the current budget deficit set at more than $1.3 trillion, the IRS will push to close the tax gap to help with the deficit. The following are 4 ways the IRS will attempt to do this.
More computer-matching and mail-driven compliance programs. It is more cost-efficient to use technology and mail than human based interaction. You can expect to see more underreporter notices and correspondence audits in the coming years.
Focus on high-yield assessments. The following areas will be focused on:
Worker Classification: W-2 vs. independent contractor
S Corp losses claimed in excess of basis
Rental property losses
General small business underreporting of taxable income
Form 1099 filing compliance
Review of international taxpayers/FBAR
3. Regulate and deputize tax professionals. The IRS apportions a part of the tax gap to uneducated/unlawful tax preparers. The IRS is now requiring all tax preparers to register with the IRS and pass an efficiency exam. This has already resulted in the number of tax preparers shrinking from 1.2 million to 850,000.
4. Mandate disclosures. Over the past few years, the IRS has begun to mandate certain disclosures on tax returns. They will continue to add to the list of disclosures in hoping to close the tax gap. Ask your tax preparer about this list as it is quite lengthy and growing.