Never waste a good crisis. This is what the IRS and state and local tax departments are saying to themselves. As a taxpayer, you should be anxious as this could lead to tax filings receiving more scrutiny than most Americans are used to.
The reason is simple; the economic slowdown brought on by the lockdowns and the lingering pandemic has started to hit governments where it hurts most – tax revenues. As such, tax departments across the country are under increased pressure to find additional tax money. This might seem like a logical conclusion, but most taxpayers are not used to this level of stricter enforcement, and this could cause problems.
According to the Independent Commission for the Reform of International Corporate Taxation, the current economic crisis has created a unique opportunity for tax agencies across the world to reform their enforcement measures surround corporate and individual taxes. The commission includes members of parliament, government agencies, and academics from around the world, and it looks at tax issues that could impact the global business environment.
In the recently released, “The Global Pandemic, Sustainable Economic Recovery, and International Taxation” the commission called on governments to increase enforcement measures, including cracking down on tax havens, as a means to ensure that tax revenues do not fall to levels that would severely impact government services in the future.
This is a genuine fear as the wave of lockdowns earlier this year ground many of the largest economies to a halt. Consequently, tax revenues cratered at the time that governments needed to mobilize a public health response to the crisis.
The falling revenues and increase in expenses mean that most governments are facing exploding deficits. As such, the only tool governments must address this issue is to increase taxes – especially as the continuing pandemic makes it challenging to cut programs.
However, this creates a problem as the millions of newly unemployed and the growing number of closing businesses mean that raising taxes would be an unpopular measure. As such, tax agencies are focusing on enforcement to increase revenues.
In the U.S., this means that individuals and small businesses are likely to face an increased audit risk in the coming years. As such, taxpayers are already reaching out to a tax attorney to find out the best way to structure or restructure their taxes so that they will be able to withstand the increased scrutiny.
This is important as tax liens, and other penalties can cripple many taxpayers, even in good times. Sadly, many people find this out the hard way as they wait until their bank accounts are frozen, or their wages are garnished.
What many people do not get is that it does not always need to end like this. In fact, the IRS, and other tax agencies, are not infallible. They do make mistakes, and this can work to your advantage. In fact, these agencies have also been impacted by COVID, and as such, agents are facing increased workloads, and this can make it easier to settle a dispute.
But you do not want to take this for granted. Instead, your focus should be on the to make sure your affairs are in order as the likelihood that the IRS and state tax agencies will adjust their algorithms to search for audit candidates has increased.
Beyond your income taxes, you should also expect that property taxes will become stricter. This means that late payments will be more likely to be fined, and assessments might be increased so that local governments can make up for budget shortfalls.
As such, you should appeal of your property taxes when the bill is delivered, as this is the best way to save money – if possible. Keep in mind. If you do appeal your property tax bill, you will need to do your homework to make sure you have the information required to make your case successfully. If not, then you could end up paying even more.
To conclude, COVID has not only changed our lives, but it is also changing how we are taxed. Governments are seeking massive shortfalls, and as such, they are likely to increase their enforcement efforts, and this means that the audit risk for many taxpayers has increased.
While you are at risk, you do not need to take on the taxman by yourself. Instead, seek out professional advice to help prepare your case and position you to win. Doing so will save you the hassle and expense of dealing with tax liens and penalties.