Earlier in January the IRS announced new enforcement pushes for 2024. If you are in Accounts Payable or Tax at a medium-large sized organization or a CPA advising such an organization then please beware.

That's because the IRS is working to ensure large corporate, large partnership and high-income individual filers pay the taxes they owe. Prior to the Inflation Reduction Act, more than a decade of budget cuts prevented the IRS from keeping pace with the increasingly complicated set of tools that the wealthiest taxpayers use to hide their income and evade paying their share. The IRS is now taking swift and aggressive action to close this gap - with its top targets being corporate America. This is being done via:

• Pursuing multi-million-dollar partnership balance sheet discrepancies: The IRS has identified ongoing discrepancies on balance sheets involving partnerships with over $10 million in assets, which is an indicator of potential non-compliance. Partnership returns are showing millions of dollars in discrepancies between end-of-year balances compared to the beginning balances the following year. The number of these discrepancies has been increasing. The IRS announced an initiative to address the balance sheet discrepancy in September and as of the end of October had sent 480 compliance alerts.
• Ramp up of audits of partnerships leveraging Artificial Intelligence (AI): The IRS has launched the first stage of its Large Partnership Compliance (LPC) program with examinations of some of the largest and most complex partnership returns in the filing population. The IRS announced in September that it would expand this program to additional partnerships. With the help of AI, the IRS has been applying machine learning technology to identify potential compliance risk in the areas of partnership tax, general income tax and accounting, and international tax in a taxpayer segment that historically has been subject to limited examination coverage. As of December, the IRS had open examinations of 76 of the largest partnerships in the U.S. that represent a cross section of industries including hedge funds, real estate investment partnerships, publicly traded partnerships, large law firms and other industries.
• Large Foreign-Owned Corporations Transfer Pricing Initiative: The IRS is increasing compliance efforts on the U.S. subsidiaries of foreign companies that distribute goods in the U.S. and do not pay their fair share of tax on the profit they earn of their U.S. activity. These foreign companies use transfer pricing rules year after year to report losses that are engineered through the improper use of these rules to avoid reporting an appropriate amount of U.S. profits. To crack down on this strategy, as of mid-November the IRS has sent compliance alerts to more than 180 subsidiaries of large foreign corporations to reiterate their U.S. tax obligations and incentivize self-correction.
• Expansion of the Large Corporate Compliance program: The Large Business & International Division’s (LB&I) Large Corporate Compliance (LCC) program focuses on noncompliance by using data analytics to identify large corporate taxpayers for audit. LCC includes the largest and most complex corporate taxpayers with average assets of more than $24 billion and average taxable income of approximately $526 million per year. As new accountants come on board in early 2024, LB&I is expanding the program by starting an additional 60 audits of the largest corporate taxpayers selected using a combination of artificial intelligence and subject matter expertise in areas such as cross-border issues and corporate planning and transactions.
• Partnership Self-Employment Tax Initiative: As part of the agency’s increased focus on the tax issues applicable to partnerships and partners, the IRS has been increasing compliance to ensure that Self-Employment Contributions Act (SECA) taxes are being properly reported and paid by wealthy individual partners who provide services and have inappropriately claimed to qualify as “limited partners” in state law limited partnerships (such as investment partnerships) not subject to SECA tax. In contrast to wage earners whose employment taxes (Federal Insurance Contributions Act/FICA) are deducted from their paychecks, self-employed individuals are required to report and pay their SECA taxes on their federal income returns. The IRS efforts to date include over 80 audits of wealthy individuals. Additionally, in November 2023, the Tax Court issued an opinion in Soroban Capital Partners LP v. Commissioner that agreed with the IRS’s position that the limited partner exception to SECA tax does not apply to a partner who is “limited” in name only. As a result, partners who actively participated in the state law limited partnership must report their partnership share as net earnings from self-employment subject to SECA tax.

To further its expansive enforcement goals for 2024 the IRS offered positions to more than 560 new skilled accountants in November and December of 2023, key positions in ramping up work to pursue high-wealth individuals, complex partnerships and large corporations that do not pay taxes owed. Importantly, the IRS has been modernizing its hiring processes and holding more direct hiring events to better compete with the private sector and quickly bring top talent on board.

For example, at a December hiring event in Houston, the IRS hired 160 skilled accountants in two days, compressing the typical three to six month hiring process into one day. Successful applicants are given tentative offers, and sponsored and fingerprinted on site, leaving only background and tax checks to be completed.

The 1099 filing your Accounts Payable department is processing now will be the most heavily examined filing many of you have likely done in your careers. It behooves you to check and double-check your work both before and after filing. As always, our team of tax attorneys stands ready to help!