5 Easy Ways to Make the IRS More Effective, Efficient, and Fairer

The Internal Revenue Service must constantly adapt to provide the best possible service to taxpayers.

As tax attorneys, we have decades of experience navigating complex tax laws to help small businesses take advantage of the deductions and credits available to them, so we know how the IRS operates. There are many things government agencies can do to improve the way they operate.

The good news is that improving the IRS is not as complicated as politicians claim. You don't have to spend billions of dollars or make major changes to existing laws. Five simple changes are all it takes to transform the IRS into an effective, efficient, and, most importantly, fair organization that can win broad bipartisan approval.

Reform #1: Create stronger penalties for fraud and fraud

Stronger penalties deter fraud in the first place and reduce the need for costly and time-consuming enforcement actions in the future, while also allowing credits to more effectively achieve their intended purpose.

Congress often creates vast and complex tax credit programs that are susceptible to fraud and abuse, and requires the IRS to allocate significant taxpayer resources to root out and punish that fraud and abuse. That's exactly what we experienced with his two flagship policies during the coronavirus era: the Paycheck Protection Program and the Employee Retention Credit.

We need to be more proactive and less reactive. That means introducing harsher penalties for such fraudulent programs in the first place (though there is room for the IRS to exercise discretion to avoid prosecution for innocent mistakes). Scaring the bad guys ahead of time by ensuring the risks outweigh the rewards can save taxpayers billions of dollars, increase the economic benefits of tax credits, and protect law-abiding citizens and businesses from audits. This will save you time and money.

Reform #2: Require transparency in the audit process

Fairness breeds trust, and trust leads to voluntary compliance.

The IRS is currently trying to maximize its advantage on the theory that it is primarily dealing with tax fraud, but this will lead to unfair victories and damage the IRS's reputation with the public. It hurts.

It's no secret that IRS audits are a living nightmare. We don't know what evidence the IRS may or may not have. The IRS does not have to justify its decision to target you. Also, I don't know how long the process will take. This process can easily drag on for years. Legal and accounting bills are piling up.

Our founders understood that government, if not tightly restrained, tends toward tyranny. The Fourth, Fifth, Sixth, Seventh, and Eighth Amendments to the U.S. Constitution are all designed to protect the rights of defendants and prevent abuse of government power. The same thinking should apply to her IRS.

Reform #3: Require probable cause

The IRS is highly vulnerable to politicization and has been exploited in the past to harass and handicap opponents of the current administration.

We know the IRS can be weaponized. That's why almost every government is accused of doing so at some point. In many cases, the accusations have at least some validity.

The solution is simple. Legally requires the IRS to establish probable cause before initiating an audit or investigation. You no longer have to act on intuition or suspicion. If it's good enough for law enforcement, it's good enough for the IRS.

Audits also need to have strict deadlines. This reduces the risk that audits will be used to harass political opponents, reduces enforcement costs, and incentivizes the IRS to prioritize cases with the highest chance of success.

Reform #4: Introducing rigorous cost-benefit analysis

The IRS should be run more like a business because its purpose is to bring money to the government.

The IRS does not exist to make society more “fair.” It exists to collect taxes. Good people should not be audited unnecessarily just because there are bad actors. Before approving an audit, the IRS must carefully consider how much money is expected to come in and how much is expected to be spent. In some cases, discretion can be the better part of courage. Even if it means overlooking a potential tax fraud and catching an even bigger one.

Reform #5: Leverage AIah Don't just do better and more

You can save a huge amount of man-hours and increase your chances of tracking down real criminals, while reducing the chance of auditing innocent people.

Currently, the IRS primarily uses AI to identify wealthy taxpayers who may be subject to audits. But there's so much more you can do with this innovative technology.

In addition to using AI to identify potential tax fraud, the IRS can also use AI to make more actionable decisions overall, including decisions about who. do not have audit. AI has great potential to improve the IRS’ bottom line if it implements this technology according to the principles outlined above. many More effective, efficient and fair.

If the IRS implemented these five simple, straightforward, common-sense reforms, it would better serve taxpayers, more effectively enforce tax laws, and help the small businesses that are the engine of America's economy thrive. It will be. And thrive.

Julio Gonzalez is CEO and Founder of Engineered Tax Services, Inc.