My name is Mike Sullivan, a former IRS Agent and IRS teaching instructor. I worked at the Internal Revenue Service for over a decade and have been in private practice for four decades. I have worked on thousands of IRS cases, spanning all areas of the Internal Revenue Service. My office resolves IRS cases such as those with IRS collection problems, IRS audits, IRS Appeals, IRS penalty abatements and trust fund penalties.
I understand both sides of the current issues about this new congressional IRS funding and believe it’s time that someone actually speaks the pure truth with no motive, no politics, and explains everything in simple terms for everyone to understand. I have no skin in the game but to tell you the truth, without noise.
Like everything, there is a good, the bad, and the ugly. Sounds like this should have been a script for a movie. The good is the IRS funding, the bad are all the rumors that are circulating, and the ugly is the politics.
The first question that needs to be addressed is, does the IRS Really Need this money?
YES! A resounding YES, this funding is desperately needed!
A few basic facts that we need to understand first is that the IRS is old and decrepit. As they say in golf and in football, the IRS is on the back nine and they are in the fourth quarter. IRS employees are getting their pensions in order and their RV’s ready. It’s time to punch the clock for the last time.
As a former IRS Agent and teaching instructor with the Internal Revenue Service, I had
the opportunity to do three recent national newscasts regarding the injection of $80 billion
into the Internal Revenue Service. The IRS will use about 60% of this money to hopefully
improve their computer system and hire more Revenue Agents, Criminal Investigators,
and Office Auditors. The IRS audits will increase. A small amount will be used to improve
taxpayer services and this is where the IRS should be devoting much more money but it
doesn’t appear that way.
The IRS Employees!
There are 2 types of IRS employees; those who learn and leave, and those who stay with the government for a long time. Yes, the ambitious ones leave early and the rest we call them “lifers”.
IRS employees have good pensions and great health insurance. They receive a check every two weeks with plenty of holidays. It’s a pretty good job, mostly stress-free, and very secure. Why leave? These are mostly good people that serve the IRS well. Just like any job, you have good and not-so-good employees; no different than anywhere else.
The IRS lost more than 23,000 workers since 2010 and it is projected that the IRS will lose another 50,000 in the next five years due to numerous retirements. Many people are eligible for retirement now. Many of the people that are retiring come from departments that help enforce the tax laws and assist taxpayers with their tax return filing duties. This transition from old to new is going to take some time. With all the new IRS agents being hired over the next few years, it will just start to begin to rebuild the IRS over a 10-year plan.
As a former IRS federal tax agent, it is doubtful we are going to see significant changes over the next 10 years. They will be modest changes at best. Everyone is expecting huge differences; I doubt it. This is a crock pot fix and not a microwave fix. It takes a long time to learn your job at the Internal Revenue Service and to be independent. If the Internal Revenue Service just upgrades their computer system and answers the phone when you call, that will be considered a success on any level.
What are the main problems?
1. Many of the IRS problems are found in the computer operating systems of the IRS. The computer system that drives the IRS is a COBOL system that popped up in the 1960s. Right now, there are 60 platforms within the Internal Revenue Service that do not talk to each other.
2. If you are trying to call the IRS, it’s not unusual to wait two hours on the phone and on some days, they may not even pick up the phone at all.
3. As of the writing of this article, there are at least 5 million tax returns not processed and my guess is over 500,000 amended returns are still sitting in an IRS room along with unprocessed payroll tax returns.
4. The IRS is currently sending no collections notices, at the moment, telling people to pay their taxes because they do not have the personnel to answer the phones and close these cases. Many IRS people who work in these collection units have been moved over to processing tax returns and into a more clerical position.
The IRS has NOT sent out a Collection Notice in the past 6 months!
The IRS does not have the personnel to work cases and answer the phones. It’s not unusual now to wait well over 6 months before the closure of a case. If you are submitting an Offer in Compromise and settling your tax debt, the waiting time is one year.
Basically, there is little money coming in from the IRS collections division. It has been mostly shut down due to unprocessed tax returns that must be attended to because taxpayers are screaming about getting their tax refunds.
It’s important to remember this is not the IRS’s fault. None of this is, but it is Congress’ fault for not being willing to fund the IRS simply because funding the IRS is not popular. The IRS is being used right now as a political tool. However, if you’re in this tax industry like I have been for the last 50 years, you will realize that this system has been broken for a long time. Unfortunately, politics has made the IRS look like the bad guy, but in reality, the fault is with the politicians. Just remember that the opposite of Progress is Congress.
So, what about all these IRS Tax Audits?
The IRS has not said what it plans to do with this new funding; all is speculation. We are way too early in the process for anyone to make any declarative decision as to what’s going to take place. Even when these new IRS agents get in the door, it will take them a while just to catch up with the process of understanding the IRS system. As a former IRS employee, it takes at least 18 months to really catch up to speed. One of my associates very recently spoke to an IRS agent that he just resolved an IRS case with. The IRS agent said that many recent new hires quit because their manager gave them too much work. Because of this problem, even more people now need to be hired by the IRS, just to replace the recent hires that quit.
I don’t think anybody knows, at the current time, what areas the IRS is going to target but to me, the low-hanging fruit is the following:
1. Self-employed type taxpayers (Schedule-C, office audits, correspondence audits, and Small Corporations),
2. Those with foreign assets (FBAR),
3. The wealthy,
4. The crypto market is new and ripe for the taking.
I would not believe anything the IRS is saying as to where those audit targets will be at the current time. Just like the IRS closed the gap on foreign bank accounts, the IRS will eventually do so with crypto and other such assets. Usually, it takes the IRS five years to catch up on the latest trends. They have already started task forces learning and entering the crypto market and it will be a whole new area of invasion by these new IRS agents.
IRS with machine guns and a SWAT team!
This sounds like a bad Hollywood- B type movie; it’s all false.
How did this come to be? The IRS asked for guns and ammunition for the criminal investigation unit and got linked up to IRS auditors “packing.” This is strictly a political stunt. Once again, according to my IRS sources, the IRS will hire many new Revenue Agents and the IRS audits will definitely increase.
How do IRS agents target their audits?
The reality of this is the IRS computer system picks those it’s going to audit through their DIF type system. The DIF (Discriminant Function System) score rates the potential for change. As a tax accountant and a tax consultant, you must understand that the IRS uses a series of algorithms on everyone’s tax returns to determine which tax returns to audit.
The selected returns are simply forwarded to Revenue Agents to review and make sure their audit is worthy. To be honest, everyone’s making a big deal about nothing. When you take all the people they hire and understand that 45% of the people are going into operations, the first year they’ll hire about 15% and scale this over the next 10 years. I do not see any huge changes coming into tax audits. However, according to my IRS sources, the audit rate will increase for self-employed businesses and small corporations, but we don’t know yet by how much. We will find out soon!
This is a full political football right now and you must know exactly what this is. I think the other “big takeaway” here is that the majority of all Americans are W-2 wage earners and few, if any, will be audited unless you’re taking excessive tax credits and/or deductions and the IRS will set up various filters to proceed and nail these individuals.
If you file an honest and clean tax return, you have nothing to worry about. It also helps to have a good former IRS agent review your individual or corporate tax returns to determine your audit potential. At the end of the day, most people reading this article will not be audited. Just because you weren’t audited in the past doesn’t mean you won’t be audited in the future.
In conclusion, our firm specializes in IRS problems and knows how to resolve them. We manage IRS collection matters such as Offers in Compromise and Installment agreements as well as IRS audits for individuals, corporations, penalty abatements, and trust fund penalties. Our staff consists of CPAs, Enrolled Agents, tax attorneys, and former IRS agents. We even have a former 40-year IRS employee Revenue Agent, Appeals Officer, a CPA, and Enrolled Agent with a Masters’s Degree in Taxation, with us who recently retired from the IRS. He has resolved many IRS cases for us in this short period of time. He even assists other CPAs, Enrolled Agents, and Attorneys resolve their IRS problems. Feel free to contact us.
