President Biden proposes to increase IRS funding in order to improve compliance and enforcement rates

On May 28, 2021, the Biden administration released its fiscal year 2022 budget. Detailed descriptions of the Administration’s tax proposals were provided in the Treasury Green Book.

In the Green Book, the administration proposes a multi-year adjustment to the discretionary spending allocation for IRS enforcement and operations support. The total adjustment would be $6.7 billion over the budget window of 10 years. The proposed allocation adjustment for 2022 would fund $417 million in enforcement and compliance initiatives and other investments.

The administration also proposes providing the IRS with $72.5 billion in mandatory funding over the budget window. A portion of these proposed IRS resources would fund improvements and expansions in enforcement and compliance activities. It would also provide the IRS with resources to enhance its information technology capabilities.

The proposal would direct that additional resources go toward enforcement against those with the highest incomes, rather than Americans with actual income of less than $400,000. The funding will supplement a recent IRS campaign to audit high net worth individuals, especially those involved with ownership of pass-through entities (i.e. partnerships and S corporations).

Introduce comprehensive financial account reporting to improve tax compliance

The administration proposes to create a “comprehensive financial account reporting regime,” equipping the IRS with better information to address noncompliance with existing tax laws. Financial institutions would report data on financial accounts in an information return. The annual return would report gross inflows and outflows with a breakdown for physical cash, transactions with a foreign account, and transfers to and from another account with the same owner.

This requirement would apply to all business and personal accounts from financial institutions, including bank, loan, and investment accounts, with the exception of accounts below a de minimis gross flow threshold of $600 or fair market value of $600. As part of the proposal to require broader financial account reporting, the Green Book also proposes separate account reporting for situations in which taxpayers buy cryptocurrency assets from one broker and make a transfer to another broker. Further, businesses that receive transfers of cryptocurrency valued at more than $10,000 would be required to report the transactions to the Internal Revenue Service.

Please contact your Mazars professional for additional information.

Published on June 4, 2021