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October 2023

Hello Ed,


We are grateful to have the opportunity to provide you with this valuable information via our monthly e-newsletter and our unparalleled forensic accounting, expert witness, and fraud investigative services.


The goal of this e-newsletter is to provide you with critical, inside information that will help you "follow the money" in business disputes, fraud cases, corporate embezzlement, and prevail when defending an IRS criminal case. We do this by sharing our knowledge from our 25+ years of experience as an IRS Special Agent and 25 years as a private investigator / forensic accountant. 


We take special care to ensure the information we provide you in "The Beacon" is the latest and most current information available. This edition talks about how the IRS is looking at the sweet spot.


We want to write about topics that will help you prevail with business disputes, fraud, and IRS criminal cases. Please e-mail us your topics of interest to Thebeacon@sageinvestigations.com.


We encourage you to share our e-newsletter with others in your sphere of influence.


Sincerely,

 

Edmond J. Martin

Principal, Chief Investigator 

Certified Fraud Examiner (CFE)

Texas Board Certified Investigator (TBCI)

IRS Looking at the Sweet Spot

This article is beneficial knowledge for all businesses. The Internal Revenue Service has known where the tax abuse has occurred for years. On September 8, 2023, they announced a new enforcement initiative to use artificial intelligence and other technologies to catch tax evaders more effectively. The efforts will be focused on the “Tax Gap.” Forty years ago, former Congressman J. Jake Pickle of Austin, Texas, would ask, when will the IRS do something about the Tax Gap? In an Executive Summary, IRS estimated the Tax Gap for 1992 to be $93.2 billion to $95.3 billion.[1]  On October 28, 2022, the IRS estimated for 2017 through 2019 the Tax Gap at $540 billion. 


What is the gross tax gap comprised of:

  • Non-filing (tax not paid timely by those who do not file on time, $41 billion),
  • Underreporting (tax understated on timely filed returns, $433 billion) and
  • Underpayment (tax that was reported timely but not paid timely, $66 billion).


The Gross Tax Gap is currently defined as the difference between the true tax liability for a given tax year and the amount that is paid on time.


The net tax gap is defined as the amount of true tax liability that is not paid on time and is not collected subsequently, either voluntarily or as the result of enforcement activities. Thus, the net tax gap represents the amount of tax liability that is never paid.[2]


Commissioner Danny Werfel said in a memorandum to Treasury Secretary Janet Yellen that part of what is now a $60 billion cash infusion would buy artificial intelligence tools and that technology and data advances will allow us to “focus enforcement on taxpayers trying to avoid taxes,” “rather than taxpayers trying to pay what they owe.” This is an important distinction. The areas receiving more scrutiny will be high-income earners, partnerships, S-Corporations, large corporations, and promoters abusing the nation’s tax laws. They will be looking more closely at pass-through entities issuing form K-1. The reduction in the budget allocated to the IRS and the COVID-19 epidemic negatively impacted audits  tax collection, and enforcement efforts and will now be changing.  


Individuals and entities with earnings over $400,000 will be the focus of the IRS audits. For the average person, earnings are the amount of money someone is paid for working. For a business, earnings are revenue minus business expenses or Net Income. Caution: Business owners must avoid personal expenditures recorded as business expenses because even though your earnings are less than $400,000, it is possible that you will be audited. IRC Section 162 still regards business expenditures as ordinary and necessary expenses incurred while engaged in trade or business.


As singer Bob Dylan said, ’The times are a-changin’.


Avoid exposure to the IRS through voluntary compliance with the income tax system. But if you or your clients get in trouble, don’t hesitate to contact the Sage Investigation team and Chief Investigator Edmond Martin at 512-659-3179 or email edmartin@sageinvestigations.com. Let our 25 years as an IRS Special Agent and 25 years of financial fraud and forensics benefit you and your clients. Please read about our team CVs.


[1] IRS Publication 1415 (Rev. 4-96) Catalog Number 10263H)

[2] IRS Tax Gap for Tax Year 2006

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At Sage Investigations, we are dedicated to serving our clients nationally to help them navigate the difficulties of dealing with fraud, divorce, estate and probate, the IRS Criminal Investigation, and other complex (forensic) financial fraud investigations. By narrowing our focus to our primary strength of “following the money,” we steer our knowledge, efforts, and experience to financial issues. We help our clients propel their cases forward by assisting in reviewing, acquiring, and organizing financial records, evaluating the elements of their cases, and helping create winning strategies. Through the use of our proprietary advanced financial investigative technology, we trace and analyze complex financial data quickly, easily, and efficiently, saving our client's time and money.

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