CBA Record July-August 2022

YOUNG L AWYERS S EC T I ON : BU I LD I NG BR I DGE S

“Out-Gunned, Out Manned, Out-Numbered, Out-Planned”: IRS Seeks to Make an All-Out Stand By Genevieve Redd

son for filing false tax returns; the 2022 conviction of Eunice Salley, a tax return preparer who prepared false returns in exchange for 50% of the refund; and the 2020 conviction of former Alderman “Fast Eddie” Vrdolyak for obstruction of an IRS investigation. Still, many believe that the high-profile convictions in Chi cago are just the tip of the iceberg and expect Chicago to be a high priority as the IRS ramps up enforcement. Unfortunately, the IRS is not known for accuracy in its penalties or for its ability to act quickly. The IRS sought to hire 5,000 new employees by the end of March 2022. As of May 2022, it had only succeeded in meeting about 8% of that goal. Therefore, wise counsel should take this lag time to review high net worth cli ents’ estate plans and proactively engage in risk management. By all accounts, the IRS is seeking to make up for the last decade as fast as possible—just as soon as it gets going.

a lack of IRS enforcement—except that it needs more of it than possibly anywhere else in the country. Indeed, some might believe that Chicago is second to none in headlining prosecution efforts by the IRS. Therefore, local practitioners should expect a heavy uptick in enforcement areas identified in recent IRS campaigns. These include global high net worth indi viduals (estimated to be responsible for $175 billion of the tax gap in 2021 alone, not including their related, closely held entities); offshore private banking; excess partnership losses; private land con servation; and micro-captive insurance arrangements, among others. Chief among the recent hiring priori ties are candidates for the IRS’s so-called “wealth squad.” The wealth squad targets not just individuals but their related enti ties such as partnerships, private founda tions, trusts, and purported non-profits. Those who have been monitoring recent headlines regarding the Trump family’s legal battles in the Southern District of New York will no doubt recognize that— political persuasions aside—the cases track quite closely with IRS prosecu tion priorities. It is only a matter of time before Chicago can expect a similar level of scrutiny from cross-agency collaboration. Recent examples of IRS enforcement in Chicago include the 2022 conviction of former Alderman Patrick Daley Thomp

Budget Cuts and the Tax Gap IRS Commissioner Chuck Rettig fre quently echoes the lyrics of Broadway’s “Hamilton” when he describes the dire straits of the IRS as “outgunned.” As many tax practitioners know, Congress has slashed the IRS’s budget every year for more than a decade, and its workforce has decreased by over 33,000 employees during that period. The exodus of the IRS’s most quali fied—and expensive—employees and resources caused an estimated $1 trillion tax gap in 2021 alone. A tax gap occurs when the IRS identifies underpaid tax obligations but cannot afford to enforce or prosecute them, usually due to the high cost of litigation. Relatedly, this lack of human resources has caused a his toric backlog in processing tax returns and refunds. Is it any wonder, then, that in connection with the record-breaking spending required to curb the pandemic, the IRS has been injected with a booster shot of cash to hire 10,000 new employ ees, including hundreds of trial attorneys, to close the tax gap? Closing the Tax Gap in Chicago: Practi tioners Beware From the legendary trial of Al Capone to the recent prosecutions of multiple alder men for tax evasion, the Second City’s cit izens never had cause to complain about

Genevieve Redd is a member of the Tax Controversy and Dispute Resolution Services Group in KPMG’s Washington National Tax practice and Co Chair of the CBA YLS Federal Tax Committee.

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