Changes at the IRS - What You Need to Know
At last month’s National Restaurant Association Tax and Finance Executive Study Group Meeting, much was discussed around changes at the IRS and the current status of the agency’s operations. Amid budget cuts and a rapidly evolving regulatory landscape, the IRS is in a state of flux, and restaurants—as well as other companies—would be wise to stay abreast of the impact these changes may have on their tax outlook.
From the day's discussions, four major themes emerged:
1. Budget and resources
Many of the shifting tides at the IRS can be attributed to its steadily decreasing budget. The House Budget proposal for fiscal year 2016 provides 8 percent less funding to the IRS year-over-year and 22 percent less funding than the White House requested. Perhaps the most visible impact of these budget cuts is the recent staffing reduction of more than 10,000 employees during the last five years, which has resulted in vacancies and acting assignments. At the same time, the IRS has absorbed additional workload projects around the Affordable Care Act (ACA), Foreign Accounts Tax Compliance Act (FATCA) and identity theft. Reduced funding could lead to a lack of resources and impact examination and collection rates. Furthermore, during the most recent filing season, only 38 percent of callers received live help on the phone, and the IRS strongly encouraged self-help using the IRS website.
2. Reinvention of the audit process
Historically, the Large Business & International (LB&I) division audited large corporate returns with lengthy time frames. Recently, however, the IRS has worked to shift the department’s focus from large corporate audits to middle market and flow-through returns. Additionally, the increase in partnership returns has pushed LB&I to prioritize partnership audits during the last several years. Adjusting to resource constraints, the agency is likely moving toward an issue-based examination model. Compliance issues will be identified upfront, helping the agency save time and resources by auditing the right issue on the right returns. Compliance issues may be identified via a number of trigger points, including Uncertain Tax Positions (UTP), the company’s financial statements, internal whistle blowers or the application of various filters.
3. International tax compliance
The current business landscape is brimming with opportunities for companies, including a number of restaurants, to expand global operations. Approximately 25 percent of current LB&I examiners are dedicated to international issues, and the agency plans to train some domestic agents to handle certain international issues as well. One promising new knowledge management initiative called International Practice Units seeks to provide agents with explanations of general international tax concepts, as well as information about specific transactions. Additionally, the agency is working to develop job aids and training materials, as well as audit steps and a glossary of terms and potential issues, to better educate employees and taxpayers on IRS positions and various approaches the agency may take during an audit or examination.
4. What’s in the IRS pipeline?
Various other updates and projects are on their way to fruition, including:
- An overhaul of advance payments under IRC Section 451, included within the latest Treasury Guidance Plan;
- A recently issued notice on increasing e-filing of employment tax returns;
- Proposed online accounts to enable taxpayers to handle the majority of their IRS dealings digitally; and
- The long anticipated Retail/Restaurant Remodel Safe Harbor, expected to be issued this month in the form of a revenue procedure.
Want to learn more about shifting tides at the IRS? Contact Phil Hofmann at [email protected]