The IRS will continue to allocate funding from the Inflation Reduction Act (IRA) towards increased tax enforcement and has its eyes set on pursuing large corporations, high-income and high-wealth non-filers in the coming year according to a press release by the IRS. The press release additionally shares the IRS actions towards continued improvements to its customer service and modernization of its core technology infrastructure spotlighting the launch of the new business tax account.
The IRS intends on targeting transfer pricing activity linked to US subsidiaries of large foreign corporations that distribute goods in the United States claiming that they "do not pay their fair share of tax on the profit they earn of their U.S. activity." Asserting that these foreign companies make improper use of transfer pricing strategies and report losses or exceedingly low margins, it hopes to circumvent inaccurate reporting of US profits. The IRS will be sending compliance alerts, colloquially known as "soft letters," to roughly 150 subsidiaries of large foreign corporations to remind them of their US tax obligations and to incentivize self-correction. Experts indicate that the IRS has limited success challenging in transfer pricing in the past, however this move may indicate a more aggressive posture in this area in a low-cost manner.
In addition to a more aggressive position vis-à-vis transfer pricing, the IRS' Large Business & International Division's (LB&I) Large Corporate Compliance (LCC) program will also increase its headcount as previously announced to support targeted audits. With the increased headcount, it intends to make use of data analytics and artificial intelligence tools to select 60 corporate taxpayers with average assets of more than USD 24 billion and average taxable income of approximately USD 526 million per year for audit.
The IRS confirmed that it will concentrate its efforts on taxpayers with more than USD 1 million in income and more than USD 250,000 in recognized tax debt, noting that it has successfully collected USD 38 million from more than 175 high-income earners. It has announced that it will continue this effort and has begun contacting about 1,600 new taxpayers since September and has already collected USD 122 million in 100 of these cases.