We received two Internal Revenue Service reports of note in the first week of this new year: (1) the Tax Exempt and Government Entities Fiscal Year 2021 Accomplishments Letter; and (2) the Progress Update Fiscal Year 2021. Here are some excerpts from these reports:
Highlights from the TE/GE Accomplishments Letter
Highlights of our accomplishments during the last fiscal year include:
- Ensured the safety of our employees as we continued to work remotely and required safety protocols when employees reported to the office.
- Continued our enforcement efforts through collaboration with other IRS divisions to identify cross-division compliance issues, developing cases with signs of civil and criminal fraud, and conducting examinations of abusive tax avoidance transactions.
- Worked with the Lean Six Sigma (LSS) program and completed the launch of the TE/GE examination process bringing consistency across five functions within TE/GE. The examination LSS team implemented most of the recommendations for process improvements. The remaining recommendations will be implemented in early 2022. A new LSS team was established to look for process efficiencies in the compliance check process.
- Enhanced our data collection and analysis capabilities that will provide for better return selection for examination and focused outreach efforts.
- Provided, under our Small Entity Compliance Initiative, tax education through virtual outreach, including presentations at Nationwide Tax Forums, translating materials into multiple languages, and creating new online resources to foster compliance. Introduced electronic filing of most of the returns filed by Exempt Organizations and Employee Plans.
- Hired 120 individuals through fiscal year 2021 and conducted 245 interviews to fill 132 additional revenue agent positions. We prepared for a larger hiring campaign in fiscal year 2022.
Highlights from the Progress Report
The IRS and the entire nation continued to face major challenges in FY 2021 as a result of COVID-19, and the way our employees responded illustrates the significant role that the IRS plays in the overall health of our country. We have been called on repeatedly to provide economic relief during this national crisis while also fulfilling our core responsibilities of tax administration. Those responsibilities include collecting more than $3 trillion in taxes each year and generating approximately 96 percent of the funding that supports the federal government’s operations. This shows we are more than a tax administration agency. We also make it possible for the government to perform its vital functions, helping fund the great work of our nation on everything from education to defense.
IRS Six Strategic Goals
- Empower and enable all taxpayers to meet their tax obligations.
- Protect the integrity of the tax system by encouraging compliance through administering and enforcing the tax code.
- Collaborate with external partners proactively to improve tax administration.
- Cultivate a well-equipped, diverse, flexible and engaged workforce.
- Advance data access, usability and analytics to inform decision-making and improve operational outcomes.
- Drive increased agility, efficiency, effectiveness and security in IRS operations.
Noncompliance Activity by Exempt Organizations
The IRS continues to refine issue-based strategy approaches and develop and test new analytic processes to ensure that examination programs are focused on the highest priority compliance areas to promote effective tax administration of tax-exempt organizations. A variety of treatment streams are considered in using the most appropriate cost effective and least intrusive approach to achieve compliance. In FY 2021, we provided additional education for employees on fraud awareness. We also strengthened collaboration among our business units to develop and test new analytic processes to improve fraud detection in issues including transportation fringe benefit claims and virtual currency transactions.
Fraud Detection Efforts
The Office of Fraud Enforcement (OFE), created in 2020, promotes compliance by strengthening our agency’s response to fraud and mitigating emerging threats. In FY 2021, OFE partnered with other IRS operating divisions, IRS-CI and other federal agencies to identify and combat schemes relating to COVID relief. Through intensive screening and investigation, OFE’s Emerging Threats Mitigation Team identified and blocked many attempted thefts of Treasury funds, leading to multiple criminal investigations and prosecutions.
Besides COVID fraud, we continue to find new and more efficient means to identify egregious behavior in noncompliant segments of the taxpayer population, including employers who do not transmit to the IRS the tax withholdings of their employees, people who fabricate businesses to claim fraudulent refunds or business owners who refuse to file employment tax returns. In addition, wealthy individuals who evade paying their share of taxes by moving their wealth offshore, converting it to virtual currency or concealing it by other means, are becoming increasingly visible to the sophisticated and evolving fraud detection efforts we use to uncover tax noncompliance.
Criminals continue to aggressively develop schemes that attempt to take advantage of the latest technology and security vulnerabilities. Virtual currency, Non-Fungible Tokens (NFTs) and other digital assets continue to be both targets and vehicles for financial fraud and money laundering as their use becomes increasingly widespread. We continue to expand the depth and breadth of fraud detection to encompass these new technologies by acquiring the latest tools, training and expertise needed to ensure tax compliance in this rapidly evolving area. In support of this work, during FY 2021 we trained hundreds of virtual currency subject matter experts and continue to support development of their investigative skills to keep pace with advancements in technology. Fraud Enforcement Advisors work with other subject matter experts and IRS Chief Counsel to identify and develop cases that meet criteria for criminal investigation. OFE plays a key role in these efforts by leveraging the latest data science and investigative tools to uncover evidence of tax noncompliance. OFE is building an IRS Culture of Fraud Identification through its many and diverse initiatives in training, consultation and support.
In April 2021, the IRS took an important step to reinforce our commitment to pursuing those who promote and use abusive tax shelters by creating a new Office of Promoter Investigations. The office is committed to identifying issues that involve abusive tax shelters as well as individuals promoting abusive tax transactions. In addition, the new office will work on agency-wide compliance issues, including coordination of promoter activities with promoter teams in other business divisions, including Small Business/Self Employed, Large Business and International, Tax Exempt and Government Entities, Criminal Investigation, and the Office of Fraud Enforcement. Currently, we are working to address schemes related to syndicated conservation easements, micro-captive insurance arrangements, abuses related to installment sales transactions, research credits and others. Our goal is to enforce the tax law and protect taxpayers from being victimized by those that promote false statements related to tax positions.