Biden’s IRS is using scare taxes to discourage legitimate tax strategies

IRS (Internal Revenue Service) Continues to issue press releases containing selective or misleading data It casts a long shadow of doubt on a perfectly legal tax-cutting strategy: Why would the IRS continue to do it?

The IRS’s intention is clear: to scare taxpayers, especially high-income taxpayers, into paying more tax than they need to. Don’t take legitimate steps to minimize your taxes, or you will attract our suspicions and come after us. And we’ll tell you how dirty these perfectly fair tax-cutting strategies are, because we at the IRS don’t like them.

This is a dirty way to play the tax enforcement game, but it fits a pattern the IRS has demonstrated and has become more pronounced under the Biden administration.

Taxpayers, especially higher-income taxpayers, need to understand what the IRS is doing with its communications strategy and why, given the increasing politicization of IRS public statements.

The IRS press release spree is increasingly reminiscent of a scene from the old “It’d be a shame if something happened” movie, where “it” in this case refers to taxpayers’ bank accounts.

The IRS is the most intimidating part of the federal bureaucracy and, unfortunately, the agency taxpayers have the most contact with. The IRS has the power to require citizens to turn over confidential business and personal financial records. They can impose fines and seize assets. They can shut down businesses. And they can prosecute taxpayers in federal court.

So it’s a very powerful institution with dangerous capabilities that can have serious effects on your life, and you might think that its enforcement actions make it worthy of such high status, but you’d be wrong.

In reality, the agency has become increasingly ideological and especially hostile to the interests of wealthy taxpayers. In a recent press release, it said: The IRS has suggested that high-income Americans are “not paying their fair share” and openly called legitimate tax-cutting strategies “scams and tricks.”. “

a 1996 IRS Bulletin The Internal Revenue Service defines its “Service Mission” as: “The objectives of the Internal Revenue Service are to collect fair tax revenues at minimal cost, to serve the public by continually improving the quality of our products and services, and to conduct our operations in a manner that maximizes the public’s confidence in our honesty, efficiency, and fairness.”

That was long ago, and now is now. Today, IRS “News” page The website features separate press releases about the Clean Hydrogen Fuel Tax Credit, the Home Energy Efficiency Tax Credit, the Sustainable Aviation Fuel Tax Credit, and medals won by IRS employees during Public Servant Awards Week, all while denigrating wealthy Americans and successful businesses.

It’s not a huge leap to see politics taking precedence over taxpayer education here, and it’s led to a series of new press releases from the IRS calling the “Dirty Dozen,” which the agency says are “a variety of common scams taxpayers may encounter.”

But in reality, it is essentially a way to sow doubt in taxpayers’ minds about the legitimacy of certain perfectly legal tax minimization strategies.

“The Dirty Dozen” release highlights obvious tax-related scams, including phishing attacks, fake charities and fake tax preparers trying to steal your personal information.

But then the “Dirty Dozen” expands to include perfectly legal tax minimization strategies, including corporate captive insurance companies, art donations, charitable remainder annuity trusts, and syndicated conservation easements.

In other words, the IRS frowns on tax minimization strategies unless alternative energy is involved, which is where they are advertised on their website.

But if the IRS sees a strategy it doesn’t particularly like, it will take the most egregious abuses of that strategy whenever possible and force that particular taxpayer into court (rather than granting a settlement) to provide examples of the abuse.

And after executing a few egregious criminals, the IRS likes to issue a series of releases implying that any use of the tactics in question is illegal and therefore members of the “Dirty Dozen.” What’s the impact for taxpayers? Don’t take an aggressive stance against the IRS; we’ll come after you.

Is it persuasion? Intimidation? Propaganda? Or simply educating innocent taxpayers?

Before jumping to conclusions, consider that the Biden administration is clearly taking a tough stance on individuals making more than $400,000 a year. The administration recently proposed new tax rates for them, The IRS has openly targeted them for increased scrutiny in previous orders..

Still, the income threshold doesn’t seem to matter. A recent study found that 63% of new audits were filed by taxpayers who Under $200,000Hold on to your wallet.

If you don’t think the agency is acting like a growling lapdog for the Biden Administration, go to the IRS.gov site. Search for terms like “fair share,” “tax evasion schemes,” and “wealthy taxpayers.” You’ll get literally hundreds of hits. This is interesting, because all of these terms are heavily biased and judgmental. They are relative terms, not legislative or numerical.

What is your “fair share”? When does a perfectly legal and legitimate tax reduction strategy become a “tax avoidance tactic”? And what is the definition of a “wealthy taxpayer” in this time of inflation and great uncertainty?

Who gets to make that judgement? And perhaps more importantly, if the polls are right and we are about to elect an administration with a fundamentally different political agenda, do we, as Americans, want this most powerful institution to simply be repurposed and restructured to pursue the political agenda of the next administration rather than the current one?

My general advice to high-income taxpayers is to remain vigilant and maintain a healthy active skepticism when it comes to anything the IRS says. The IRS is no longer the agency you remember, one that was simply trying to collect taxes efficiently and fairly.

If you’re considering a tax minimization strategy, discuss it thoroughly with a trusted advisor to ensure it’s 100% legal, that you fully understand it, that you’ve thoroughly and completely documented it, and that you’ve taken into account all of the audit risks it may pose. Audits are no fun, but with the right team of advisors, you don’t need to fear them. Audits are a simple reality of doing business, and you’ll deal with them with the right experts and advocates on your side.

Once you have vetted a strategy and decided to adopt it, don’t be fooled by what’s on the IRS website or what its director says. In front of the parliamentor any other type of press release or public announcement will not affect you unless you hear a different opinion from your tax advisor.

If you are sufficiently risk averse or wealthy that overpaying federal taxes won’t have a major impact on your family, ignore the advice above, and if you’re not, understand that it’s not the IRS’s job to take care of you, and under the current administration, the IRS is unlikely to take care of you.

Bruce Willie American Tax & Business Planning LLC.