IRS Tax Audits and Collections Are Increasing: Are You Ready?

The pandemic resulted in significant delays at the IRS. While there are still problems, tax audits and collections are increasing, indicating a slow return to normal operations. In addition, the IRS has stated that it will be focusing more resources on auditing and collecting taxes from high wealth taxpayers. What does this all mean for you if you are behind in your taxes?

Pandemic-Related Problems at the IRS

In the early days of the pandemic, significant delays occurred with all IRS work because of the shutdown of IRS offices, remote work of staff and newly added responsibilities administering stimulus payments. As a result, most audits and collections were halted. Processing of tax returns was also drastically affected and taxpayers (and their representatives) couldn’t contact customer service to address tax matters.

As tax attorneys representing clients with tax issues, we experienced extensive delays getting information from the IRS, waiting for cases to be assigned and resolving tax problems.

Current Status of Audits and Collections

While there have been slow but steady improvements over the last 2 years, there are still ongoing issues. As of the end of 2022, IRS issuance of tax liens and levies used to collect monies owed were drastically down. Enforcement against those who didn’t file a tax return (non-filers) was also down. In addition, the IRS hasn’t resumed sending out reminder notices to those who owe back taxes. Only the first notice that payment is due is going out (CP14). Broadly speaking, the IRS is not pursuing delinquent taxpayers to the same extent as it was pre-pandemic.

However, the IRS announced that it has prioritized enforcement against non-filers with more than $100,000 in income as well as millionaires who owe a significant amount of money. While there aren’t a large number of taxpayers in this category relatively speaking, they represent an outsized portion of the outstanding tax debt owed to the government.

Field collection activities where IRS auditors visit the taxpayer to resolve balance due accounts and delinquencies are fully operational now but surprise visits are no longer being conducted.

In our practice, we have seen evidence that the IRS has caught up on some of its backlog and is slowly returning to more normal operations. Tax returns and other submissions sent in paper format are being processed much faster and issues are being resolved more quickly. Audits have increased. Clients are being moved into collections faster and collection cases that were waiting for several years to be assigned to a revenue officer have now been assigned. Customer service has also improved, although many calls remain unanswered, especially during peak periods.

Impact on Taxpayers Owing Back Taxes

Over the last few years, many taxpayers with tax debts noticed that they weren’t receiving IRS notices and no doubt hoped that they would be forgotten. Those who were identified as owing money benefitted from the fact that when audits and collection efforts first started to resume, the IRS was more willing to negotiate settlements and delay enforcement in consideration of the hardship individuals and businesses went through during the pandemic. However, that has been changing with more collection notices going out and fewer settlements. In addition, the IRS received more money from Congress for hiring staff. This means taxpayers should be concerned about being caught by the IRS if they owe money.

If you owe back taxes, this is a good time to contact a tax lawyer for assistance in challenging your tax bill or negotiating a settlement. Ideally, you want to do this before the IRS starts collection action. Fighting a lien or levy is more expensive than settling with the IRS before that happens. In addition, the longer you wait the higher your penalties and interest on your debt.

Don’t wait for the IRS to show up. Contact us for a consultation.