As part of its recent announcement that the IRS will be shifting its enforcement efforts toward wealthy taxpayers, the agency laid out its compliance priorities for the 2024 fiscal year. Tax professionals should be aware of where the IRS is planning on focusing its future efforts so they can prepare their clients for the possibility of increased IRS scrutiny.

Expanded digital asset compliance

The IRS is continuing to expand its recent efforts in addressing digital asset compliance. Those efforts have included the recent release of proposed regulations for broker reporting of transactions involving digital assets and the use of John Doe summonses seeking the account information of taxpayers using digital currency exchanges.

The Virtual Currency Compliance Campaign will continue after an initial review found that as many as 75% of taxpayers identified through records produced by digital exchanges were non-compliant. The IRS anticipates more digital asset cases being pursued for compliance work during the 2024 fiscal year.

Increased scrutiny of FBAR non-filers

An analysis of multi-year filing patterns for Report of Foreign Bank and Financial Accounts (FBAR) by the IRS has identified hundreds of possible FBAR non-filers with account balances over $1.4 million. The IRS plans on auditing the most egregious non-filers during fiscal year 2024.

Investigating construction contractor scams

The IRS said it has been seeing cases where construction contractors are reporting payments on Forms 1099-MISC and 1099-NEC to what appear to be subcontractors, but are actually shell companies with no legitimate business relationship with the contractor. These schemes have been seen in Texas and Florida.

The money paid to the shell companies is then exchanged at money service businesses or flows through accounts of the shell company back to the contractor reporting the payments. Money service businesses generally offer check cashing, money orders, travelers’ checks, currency exchange services or pre-paid access products.

The IRS will be expanding its compliance efforts in this area through both civil audits and criminal investigations. It is hoped that these efforts will level the playing field for contractors who are following the rules and ensure proper employment tax withholding for vulnerable workers.

Other initiatives

While they are not listed as 2024 compliance priorities, the IRS will also be focusing on ensuring audit fairness and protecting taxpayers from scams and schemes that frequently target taxpayers with modest incomes. Additionally, the IRS plans to continue efforts intended to:

• Improve audits involving earned income tax credits to make them more equitable
• Warn consumers about emerging tax scams and schemes
• Protect against identity theft through its Security Summit initiative

“The IRS is on the side of taxpayers, and we will be working to protect hard-working people from scammers or fraudsters who try to use the tax system for their schemes, whether it’s promising people inflated EITC amounts or tricking people into tax-related identity theft,” said IRS Commissioner Danny Werfel in a statement accompanying the announcement of the new initiatives. “Protecting hard-working taxpayers is a critical component to ensuring the success of the nation’s tax system, and the IRS will be working throughout the fall and into the 2024 filing season to take steps to help people.”

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