5 Top Enforcement Priorities for the IRS in 2021

When you file your 2020 tax returns, will you be meeting your obligations for yet another year? Or, will you be exposing yourself to the risk of an Internal Revenue Service (IRS) audit or investigation? Oversights and other mistakes can lead to IRS scrutiny—especially when these mistakes involve the IRS’s current enforcement priorities.

As a U.S. taxpayer, you should always be sure to accurately complete your income tax returns and pay what you owe. But, there are certain issues that require particular attention. Here, New Jersey tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, discusses five issues that are particularly likely to lead to IRS scrutiny in 2021:

1. Cryptocurrency

The IRS began ramping up its efforts to enforce U.S. taxpayers’ income tax obligations with regard to cryptocurrency transactions in 2019, and it has signaled its intent to maintain aggressive enforcement activities in this area in 2021. Taxpayers must carefully track their cryptocurrency transactions so that they can accurately report and pay what they owe, and failure to do so can lead to significant liability.

2. Offshore Accounts

U.S. taxpayers who own offshore accounts must report these accounts to the IRS and the Financial Crimes Enforcement Network (FinCEN) on an annual basis—with only limited exceptions for small accounts. Foreign financial institutions have an obligation to report U.S. taxpayers’ holdings as well. Failure to disclose offshore holdings can lead to both civil and criminal penalties, and audits can examine several years’ worth of offshore account ownership.

3. Conservation Easements

The IRS has recently identified fraudulent tax deductions for conservation easements as an enforcement priority. This includes fraudulent tax deductions claimed by individual taxpayers as well as by those involved in syndicated conservation easement transactions. Among other issues, the IRS is specifically focused on identifying returns that fraudulently claim eligibility for conservation easement deductions and that overstate the value of the taxpayer’s historic property.

4. Home Office Deductions

With more people working from home during the COVID-19 pandemic, the IRS is paying particular attention to home office deductions. Only qualifying self-employed taxpayers are eligible (employees are not), and those who qualify must be careful not to overstate the portion of their home that they use exclusively for business purposes.

5. Gambling Income and Losses

As more states legalize various forms of gambling, gambling income and losses are increasingly being viewed as red flags by IRS revenue agents. Of course, gambling has been legal in New Jersey for a long time, but this does not exempt in-state residents from a careful review of their annual returns.

Request a Consultation with New Jersey Tax Attorney Kevin E. Thorn, Managing Partner of Thorn Law Group

New Jersey tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, provides tax consulting and defense representation for U.S. taxpayers who are dealing with the IRS. If you are facing an audit or investigation, or if you need to clean up a past mistake in order to mitigate any potential penalties, you can call 201-355-8202, email ket@thornlawgroup.com or contact us online to arrange a confidential consultation.