The Internal Revenue Service could be doing more to detect and deter promoters of abusive tax schemes, according to a new report.
The report, released Tuesday by the Government Accountability Office, pointed to the various schemes listed by the IRS every year in its roundup of the Dirty Dozen tax scams. The report often attracts plenty of media coverage, but the report found said the list does not include instructions on how the public can report potential abusive tax schemes to the IRS. The GAO recommended the IRS amend the Dirty Dozen publication to include this information.
The report acknowledged the IRS has taken steps to identify and stop promoters who arrange and market abusive tax schemes. In fiscal years 2021 and 2022, the IRS conducted hundreds of investigations that led to tens of millions of dollars in penalties.
Currently, the IRS is aware of more than 40 types of abusive tax schemes involving promoters. The omnibus spending bill passed by Congress in late December aims to stop one type of promoter of an arrangement that’s often listed by the IRS among the Dirty Dozen — syndicated conservation easements — in which promoters are able to sell tax breaks on unused land to groups of investors appraised at many times its purchase value on condition that it won’t be developed. According to ProPublica, the spending bill will limit taxpayers’ deduction to two and a half times their investment.
One method the IRS uses to identify these promoters is information referrals from the public, the GAO report noted. The GAO found that the public can refer information to the IRS on a number of forms, but few of them can be submitted online. The GAO has previously recommended that the IRS take steps to improve its referral programs by developing a consolidated, online referral submission tool.
The IRS created an Office of Promoter Investigations in 2021 to coordinate the agency’s response to promoters of abusive tax schemes. The office works to design, develop, and deliver the major activities that help detect and deter abusive tax schemes and their promoters. But though the office has developed strategic goals to fulfill its mission, it hasn’t yet finalized and communicated outcome-oriented performance goals and measures within the IRS. “Finalizing outcome-oriented performance goals and measures will allow the Office of Promoter Investigations to better evaluate its efficacy and ensure it is meeting its mission,” said the report.
The IRS pointed to the work of the office in stop tax scheme promoters. “The goal of the OPI is to protect taxpayer rights and equitably enforce the tax laws,” wrote Melanie Krause, acting deputy commissioner for services and enforcement at the IRS, in response to the report. “We want to proactively provide taxpayers and other stakeholders with information on how to protect themselves against feud schemes and abusive tax avoidance efforts. The IRS is committed to identifying and stopping abusive tax schemes and abusive promoters and preparers as soon as possible. The IRS relies on help from the tax practitioner community and the public to identify ‘too good to be true’ abusive tax transactions.”