The IRS’ FY 2024 Financial Report Highlights Enforcement Priorities Heading Into 2025

The Internal Revenue Service (IRS) recently released its 2024 Financial Report. While the report “highlights the programs, accomplishments, challenges and management’s accountability for the resources entrusted to the IRS,” it also provides insight into the IRS’ enforcement priorities heading into 2025. Learn more from Texas IRS lawyer Lawrence Brown:

Enforcement Priorities Identified in the IRS’ FY 2024 Financial Report

While the IRS’ FY 2024 Financial Report covers a variety of topics, one of the most important topics for high-income and high-net-worth taxpayers is enforcement. The IRS has been ramping up its enforcement efforts recently (thanks to increased funding under the Inflation Reduction Act (IRA)), and it has prioritized targeting high-income and high-net-worth taxpayers who have substantial outstanding tax liabilities.

According to the FY 2024 Financial Report, the IRS Collected $98.7 billion in enforcement revenue from October 1, 2023 to September 30, 2024. While this pales in comparison to the $5.1 trillion in gross tax collected, it is still a significant sum. This is especially true when you consider that the vast majority of this sum was collected from a relatively small number of high-income and high-net-worth entities and individuals.

In discussing the IRS’ recent enforcement efforts, the FY 2024 Financial Report refers back to the IRS’ Strategic Operating Plan (SOP), which the agency published in 2023. One of the five strategic objectives outlined in the SOP is Strategic Objective 3: Focus Expanded Enforcement on Taxpayers with Complex Tax Filings and High-Dollar Noncompliance to Address the Tax Gap. The IRS also recently published a 2024 IRS Strategic Operating Plan Annual Update, in which it stated that its achievements include:

“Ramp[ing] up efforts to pursue high income, high wealth individuals who have either not filed their taxes or failed to pay recognized tax debt, concentrated among taxpayers with more than $1 million in income and more than $250,000 in recognized tax debt.”

Thus, clearly, the IRS is targeting high-income and high-net-worth taxpayers—and is planning to do so for the foreseeable future. The SOP will guide the IRS’ enforcement initiatives through 2031, and the IRS has recently taken some significant steps toward enhancing its enforcement capabilities in this area. These steps include appointing a new Associate Chief Counsel and establishing a new field operations unit that is both tasked specifically with targeting large partnerships and other high-net-worth pass-through entities.

The IRS’ FY 2024 Financial Report also identifies “Enforcement of Tax Legislation” as a “Major Program,” and it lists seven specific initiatives that the agency plans to continue pursuing to reduce the tax gap. These initiatives are:

• Employ centralized, analytics-driven, risk-based methods to aid in the selection of compliance cases.
• Expand enforcement for large corporations.
• Expand enforcement for large partnerships.
• Expand enforcement for high-income and high-wealth individuals.
• Expand enforcement in areas where audit coverage has declined to levels that erode voluntary compliance.
• Pursue appropriate enforcement for complex, high-risk, and emerging issues.
• Promote fairness in enforcement activities.

The FY 2024 Financial Report identifies several other initiatives as well, including “[i]mprov[ing] technology operations” and “[m]aximiz[ing] data utility.” While not specific to enforcement, these initiatives will nonetheless play an important role in the IRS’s enhanced enforcement efforts going forward—as the agency is increasingly leveraging technology to identify potential instances of non-compliance.

“Enforcement Areas Where Audit Coverage Has Declined” and “Complex, High-Risk, and Emerging Issues”

Along with targeting high-income and high-net-worth taxpayers generally, the IRS is also planning to target certain specific substantive areas of non-compliance as well. These include “enforcement areas where audit coverage has declined” and “complex, high-risk, and emerging issues,” as noted in the list above. Thus, heading into 2025 and beyond, we expect the IRS to prioritize enforcement in areas including (but not limited to):

Cryptocurrency and Other Digital Assets

Enforcing compliance with respect to cryptocurrency and other digital assets has been an IRS priority for the past several years. As cryptocurrency continues to gain mainstream acceptance, and with digital asset investing growing in popularity in general, we expect this to be among the IRS’s main focus areas in the years to come—particularly when auditing high-income and high-net-worth taxpayers.

Offshore Accounts and Other Foreign Financial Assets

Enforcing compliance with respect to offshore accounts and other foreign financial assets is a longstanding IRS priority as well. In a late 2023 News Release, the IRS identified FBAR violations as a particular concern going forward. Along with FBARs, many taxpayers must file IRS Form 8938 to disclose their foreign financial assets annually, and failure to file an FBAR or IRS Form 8938 (or both) can subject taxpayers to civil or criminal penalties depending on the nature of the allegations involved.

Online Gaming and Gambling

With more states joining the push to legalize online gaming and gambling, this is also going to be a major enforcement area for the IRS in the years ahead. While gambling and gaming winnings are subject to tax at the federal level, gambling and gaming-related income is grossly underreported. As is the case with cryptocurrency and offshore accounts, the IRS will be working with financial institutions, internet service providers and other intermediaries to identify non-compliant taxpayers.

Cannabis and CBD

The push toward legalization of cannabis and CBD is continuing at the state level as well, and while marijuana remains a Schedule I controlled substance at the federal level, taxpayers must still report their cannabis and CBD-related income to the IRS. This is another “complex, high-risk, and emerging” issue that is almost certain to garner significant attention from the IRS in the years to come.

Request a Confidential Consultation with Texas IRS Lawyer Lawrence Brown

At Brown Tax, P.C., we represent high-income and high-net-worth taxpayers in significant federal tax controversies. If you have concerns about facing an IRS audit or investigation in 2025, we invite you to contact us to discuss what we can do to help. To request a confidential consultation with Texas IRS lawyer Lawrence Brown, please call 888-870-0025 or tell us how we can reach you online today.