The IRS ’ s active hiring efforts are aimed at addressing understaffing and filling vacancies due to upcoming retirements .
taxupdate
BY CELIA LAU , CPA
Key Updates for CPAs
Insights from CalCPA COT / IRS Liaison Meeting on May 17 , the CalCPA Committee on Taxation ( COT ) met with representatives from the IRS to discuss important topics impacting CPAs and their tax practices . This article aims to provide CPAs with an overview of the meeting ’ s key takeaways , focusing on updates that are relevant to their tax practice . From changes in tax legislation to emerging areas of concern , CPAs will gain valuable insights to navigate the ever-evolving tax landscape .
Tax Controversy The meeting started with an overview of IRS examinations by an SB / SE Field Exam group manager . The IRS shared that it emphasizes face-to-face meetings to ensure compliance and visibility with taxpayers . COT members were informed that the local offices do not participate in the process of determining which returns are selected for audit , as cases are assigned at the local level based on a national work plan .
Another SB / SE Field Exam group manager gave an update on audits . She shared that the IRS ’ s active hiring efforts are aimed at addressing understaffing and filling vacancies due to upcoming retirements . Interestingly , although it has been widely publicized that the IRS is looking to hire 87,000 workers over the next 10 years , the IRS shared that it also anticipates losing 82,000 employees during the same period . Its ability to maintain a skilled workforce is critical to effectively carrying out its mission .
It was emphasized that the additional IRS funding granted by the Inflation Reduction Act would be used to increase compliance and not increase audits of individuals with less than $ 400,000 of income . The audit process for partnerships , specifically under the new Centralized Partnership Audit Regime ( CPAR ), was also discussed . The IRS pointed out that this process is new to both the IRS and to taxpayers and asked for patience . Such examinations will take a while to conduct , as
there are a lot of steps involved , including reliance on tax computation specialists who serve many departments within the IRS and often have huge backlogs .
Other items that were briefly touched upon :
· The taxation of the gig economy continues to be an emerging area .
· A question was posed by a member of CalCPA ’ s COT whether businesses whose income tax returns are selected for audit and have claimed the Employee Retention Credit ( ERC ) would have the ERC ( which is claimed on payroll tax returns ) examined as part of the audit . The IRS indicated they do not know the answer to that yet , as they are still primarily auditing tax year 2019 tax returns . ( The ERC was provided for under COVID relief and applied to tax years 2020 and 2021 .)
· In a recent taxpayer-favorable case , Farhy
The IRS ’ s active hiring efforts are aimed at addressing understaffing and filling vacancies due to upcoming retirements .
v . Commissioner , the Tax Court ruled that the IRS does not have statutory authority to immediately assess and collect Form 5471 penalties , but instead must recover such penalties through a civil action ( through the courts ). As we all wait and see if the IRS Commissioner will appeal this decision , a COT member asked how the IRS is proceeding in the meantime . They responded that they are continuing to assess such penalties ( business as usual ). CPAs who have had clients pay Form 5471 penalties for tax years for which the statute of limitations remain open or who are working with clients currently facing such penalties should continue to monitor closely for developments on this issue .
Digital Assets ( Including Cryptocurrency ) The IRS presented attendees with an overview of the taxation of digital asset transactions and the challenges it faces in this ever-evolving areas , followed by a brief Q & A session . Following are some of the issues that were discussed :
· One COT member asked whether a summons is standard in all examinations of digital assets , as has been his experience . The IRS responded that because there is currently no standard format in which they can receive the information , and realized gain / loss details provided by platforms such as Robinhood , while a helpful starting point , are insufficient , it must issue a summons to obtain the data it needs to run its own basis computation and confirm accuracy . The IRS did indicate , however , that they are not looking to “ get ” taxpayers www . calcpa . org JULY 2023 CALIFORNIA CPA 19