As the August recess approaches, Congress is nearing an agreement with the White House on budget and debt issues that must be resolved before the end of the fiscal year. While congressional activity has been focused mainly on other areas this year, Congress passed the Taxpayer First Act, the IRS reform package that was signed into law on July 1, 2019. Notably, this legislation codifies an independent Office of Appeals, limits private collection of tax debts owed by low-income taxpayers, and requires updates to the technology and security of IRS systems.
The U.S. Department of the Treasury and the IRS continue to work through the tax regulatory agenda, publishing a mix of regulations implementing the Tax Cuts and Jobs Act of 2017 (TCJA) and other provisions. In May, the Treasury Inspector General for Tax Administration (TIGTA) identified that as of May 14, 2019, a significant number of TCJA-related regulatory guidance projects remain to be published. Since issuance of that TIGTA report, a number of proposed and final rules have been published, such as proposed regulations on the endowment tax, final regulations on global intangible low-taxed income (GILTI), and temporary regulations on the dividends received deduction for GILTI gap years. Still, as extended due dates for calendar year filers approach, taxpayers are awaiting final guidance on the interest limitation under IRC Section 163(j), base erosion and anti-abuse tax, foreign-derived intangible income, and the foreign tax credit as well as proposed guidance on timing rules under IRC Sections 451(b) and (c).
Other regulations of note that have been published in recent months include final regulations permitting employers to truncate social security numbers on Form W-2s provided to employees, proposed regulations on the deduction for qualified business income of certain cooperatives, and final regulations and other guidance addressing workarounds of the TCJA’s state and local tax deduction limitation.
Though IRS audits during the 2017 calendar year were way down (about .5% of returns filed were audited, according to the IRS’ recently released Data Book, 2018), several compliance and enforcement developments this spring and summer could change those statistics going forward.
- Increased use of data analytics
The IRS has announced increased reliance on data analytics to manage enforcement and compliance priorities. For instance, the Criminal Investigation Division is using data analytics to uncover noncompliance related to cryptocurrencies, and the Large Business and International (LB&I) Division is using data analytics to better target and prioritize examination resources based on increased use of risk assessment techniques.
- Cryptocurrency guidance
On May 30, Commissioner Charles Rettig said that guidance on cryptocurrency basis and hard forks would be forthcoming within the next 30 days. However, this guidance has yet to be released.
- Six new LB&I campaigns
The LB&I Division announced six new enforcement campaigns. One addresses built-in gains of S corporations; the others address individual international compliance issues and voluntary compliance initiatives now that the Offshore Voluntary Disclosure Program has ended.
- Notable retirements
Both Deputy Commissioner for Services and Enforcement Kirsten Wielobob and National Taxpayer Advocate Nina Olson are leaving the IRS this summer after long and distinguished careers with the agency. The departure of these two influential leaders and the fact that the Taxpayer First Act requires the IRS to send Congress a plan of reorganization by Sept. 30, 2020, means that change is likely at the IRS.
- New forms for individuals
In response to concerns from employers and professional organizations, the IRS continues to fine-tune Form W-4, “Employee’s Withholding Allowance Certificate,” to allow taxpayers to adjust withholding in light of the major changes made by the TCJA. The IRS expects to have a revised form available in the fall.
In addition, the IRS has released a draft of the new Form 1040-SR, “U.S. Tax Return for Seniors.” This form, mandated by the Bipartisan Budget Act of 2018, is intended to simplify return filing for senior citizens, though critics claim that the form would not have been needed if Form 1040-EZ and Form 1040-A had not been eliminated as part of the recent overhaul of Form 1040.