Financial Crime and Tax Policy: How the IRS is Tackling Tax Evasion in 2024

As financial crime becomes increasingly sophisticated, the IRS has ramped up its efforts to combat tax evasion in 2024, leveraging a blend of new technology, strengthened enforcement policies, and collaborative global partnerships. The stakes are high: tax evasion costs the U.S. government hundreds of billions of dollars each year, impacting the integrity of the tax system and placing a heavier burden on compliant taxpayers. In this guide, we’ll explore the latest strategies the IRS is employing to detect and prevent tax evasion, as well as what businesses and individuals should know to stay compliant in an evolving regulatory landscape.

1. Modernizing Tax Enforcement with Technology

The IRS has invested in advanced technologies, including artificial intelligence (AI) and data analytics, to detect and deter tax evasion more effectively. By automating complex calculations and cross-referencing large data sets, the agency can now identify suspicious patterns and anomalies more quickly.

Key Technologies in IRS Enforcement

• AI-Driven Data Analytics: AI algorithms analyze vast amounts of taxpayer data, searching for discrepancies that could indicate tax evasion, such as unreported income or mismatches in income reporting.

• Blockchain Analysis: As cryptocurrency transactions grow, the IRS uses blockchain analytics tools to trace transactions across digital wallets, even across jurisdictions.

• Real-Time Data Matching: IRS systems now match real-time data with filings from financial institutions, including banks, to identify inconsistencies, especially in high-risk industries.

Takeaway: Taxpayers should double-check their filings to ensure all income sources are accurately reported. Advanced tech tools mean that even subtle discrepancies can trigger audits or penalties.

2. Expanding Resources for High-Income and Complex Filers

One of the IRS's core focuses in 2024 is high-income individuals and complex business filers, who often have intricate tax situations that may involve foreign assets, trusts, or tax shelters. In recent years, this segment has been responsible for a significant portion of the tax gap.

New Initiatives for High-Income Taxpayers

• Increased Audits for High Earners: The IRS is increasing audit rates for individuals earning over $1 million annually and for large corporations. This comes after years of declining audit rates, especially among high-income taxpayers.

• Specialized IRS Teams: To address complex filings, the IRS has trained specialized teams within its Criminal Investigation division to focus on international tax evasion, real estate income, and cryptocurrency reporting.

• Enhanced Oversight of Offshore Accounts: In collaboration with international tax agencies, the IRS now has greater access to offshore bank account data and foreign-held assets, making it harder for taxpayers to hide assets abroad.

Takeaway: High-income taxpayers should seek professional guidance to ensure compliance, especially if they have offshore assets or other complex financial arrangements.

3. Tackling Tax Evasion Through International Cooperation

With more individuals and companies conducting business across borders, the IRS has ramped up its global partnerships to tackle cross-border tax evasion. Collaborations with foreign tax authorities and participation in international agreements are helping the agency trace hidden assets and income more effectively.

International Collaboration Efforts

• Joint Chiefs of Global Tax Enforcement (J5): This coalition, comprising tax agencies from the U.S., UK, Canada, Australia, and the Netherlands, shares intelligence and conducts joint operations to uncover tax fraud involving cryptocurrencies and offshore assets.

• Common Reporting Standard (CRS): Through the CRS, the IRS can obtain information on U.S. taxpayers’ foreign financial accounts, making it easier to detect unreported income from overseas accounts.

• Increased Information Sharing: The IRS is now working more closely with countries through exchange agreements, providing data that can be used to cross-check income, assets, and business profits.

Takeaway: Those with foreign holdings should ensure their income and assets are accurately reported on their U.S. tax returns, as the IRS now has more tools and partnerships to track offshore financial activities.

4. New Reporting Requirements for Cryptocurrencies

Cryptocurrencies have become a focal point for the IRS as digital assets are increasingly used to evade taxes. To address this, the IRS has introduced several new requirements for reporting cryptocurrency transactions and has allocated more resources to investigate crypto tax evasion.

Key Crypto Reporting Changes

• Form 1040 Disclosure: Taxpayers must answer questions on Form 1040 about cryptocurrency transactions, including receiving, selling, or otherwise disposing of digital assets. Failure to report accurately can lead to penalties or audits.

• Digital Asset Reporting for Brokers: Crypto brokers are now required to report customer transactions to the IRS, making it harder for individuals to hide gains or income from crypto activities.

• Increased Penalties for Non-Disclosure: Fines for failing to report cryptocurrency transactions have been raised, underscoring the IRS’s commitment to enforcing crypto tax compliance.

Takeaway: Taxpayers involved in crypto should keep detailed records of their transactions to ensure accurate reporting and compliance with new IRS requirements.

5. Strengthening Penalties and Whistleblower Protections

To deter tax evasion, the IRS has introduced higher penalties for non-compliance and expanded whistleblower protections to encourage individuals to report tax fraud. The IRS Whistleblower Office has seen an increase in reports, leading to significant tax recovery from entities that engage in fraudulent practices.

Enhanced Penalty Structures

• Increased Fines for Tax Evasion: The IRS has raised fines for underreporting income, underpayment, and failing to file, particularly targeting those using illegal shelters or offshore accounts.

• Whistleblower Rewards: Those who report tax fraud can receive rewards of up to 30% of the recovered taxes, with additional protections against retaliation.

Takeaway: Avoiding penalties starts with accurate and honest reporting. By keeping thorough records and consulting tax professionals, businesses and individuals can avoid fines and potential legal issues.

6. Educating and Empowering Taxpayers

Finally, the IRS has prioritized taxpayer education in 2024, with a focus on guiding small businesses, gig economy workers, and crypto investors on how to stay compliant. The IRS website and its publications now feature detailed resources, guides, and workshops designed to help taxpayers understand their obligations.

Key Education and Support Initiatives

• Virtual Workshops and Webinars: The IRS now offers online workshops covering complex tax topics like foreign income reporting and digital asset taxation.

• Small Business Resources: To support small business owners, the IRS has enhanced its small business portal with guides on tax compliance, including employee withholdings and deductions.

• Crypto Compliance Tools: The IRS offers resources for tracking and reporting digital assets, including calculators and transaction record-keeping tools.

Takeaway: Utilize IRS resources to stay informed about reporting requirements and updates to tax law. Tax professionals can also be invaluable in helping taxpayers understand and meet their obligations.

Conclusion

The IRS’s approach to tackling tax evasion in 2024 emphasizes technology, global collaboration, targeted audits, and enhanced reporting requirements, especially around cryptocurrency. For both individuals and businesses, the key to staying compliant is understanding and adapting to these changes. By investing in accurate record-keeping, consulting professionals when necessary, and staying informed on new requirements, taxpayers can reduce risk, avoid penalties, and contribute to a fairer tax system.