Magazine article Insight on the News

The IRS Is Getting Serious about Enforcement Policies

Magazine article Insight on the News

The IRS Is Getting Serious about Enforcement Policies

Article excerpt


Congress hadn't even approved the 2004 IRS budget request of $10.437 billion and already the IRS was asking for more. The 2005 budget request is over a billion dollars more than the 2004 request, and most of the new money would go to fund law-enforcement projects, including the hiring of 5,000 more employees.

When former commissioner Charles Rossotti left office a year ago, he advised Congress that for the IRS to return to pre-1998 enforcement levels, the agency would have to be beefed up to the tune of about 2 percent per year, for the next five years. Under the most recent budget request, the agency's bankroll would grow by a whopping 12 percent over the 2004 figure.

Based on congressional authorization of the 2004 budget request, expect unprecedented enforcement in the following key areas:

* Increased audits of small businesses. For years the IRS has been concerned about partnerships and small-business corporations (so-called "S corporations") reporting all their income. The IRS began a program two years ago to target small businesses for audit to ensure that they're reporting all income. With new funds, the agency expects to increase the number of these audits by 110 percent in 2004.

* More attacks on nonfilers. The known IRS inventory of tax-return non-filers is 6.8 million. For obvious reasons, it is unable to target all these people for enforcement action. However, by earmarking $3.6 million to the program and increasing its staff, the IRS expects to contact an additional 1.6 million nonfilers in 2004. Through this process, the IRS expects to make $74 million in new tax assessments.

* Increased scrutiny of W-4 forms. Form W-4, Employees Withholding Allowance Certificate, is the form you file with your employer to set your wage withholding. Many nonfilers inflate their allowances to stop wage withholding. The IRS intends to increase the use of its Questionable Form W-4 Program to intercept the bogus forms. Under the program, the IRS sends a letter to those whose W-4s (turned into the IRS by one's employer) fall outside acceptable parameters. The letter demands the form be corrected or the IRS will impose penalties and instruct the employer to disregard the W-4 and withhold at the highest level. The agency's goal is to use the Questionable Form W-4 Program to identify new nonfilers and enforce collection against those already in its case inventory.

* Targeting underreporters. An underreporter is one who fails to claim all income. …

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