It’s that time of year again, when lawmakers on Capitol Hill convene to discuss the FY24 Federal Budget - a topic which (for better or worse) impacts many who live, work, and thrive in our region.
However, it’s what got passed in last year’s budget that some donors may want to pay closer attention to.
In August 2022, Congress passed the Inflation Reduction Act, which included nearly $80 Billion in funding for the Internal Revenue Service over the next 10 years.
Last month, the IRS Commissioner released the agency’s operating plan, outlining how the new funding would be allocated. The 150-page plan covering 2023 - 2031 speaks primarily to five areas of priority spending:
$47.4 billion to increase tax compliance among wealthy taxpayers and businesses.
$12.4 billion for technology enhancements.
$8.2 billion to recruit and retain a highly skilled, diverse workforce.
$7.5 billion targeting taxpayer service improvements.
$3.9 billion for cybersecurity.
Significant operational efficiencies are anticipated, and the heightened compliance efforts will generally apply to taxpayers making more than $400,000 annually. What’s raising eyebrows is that high-income earners and thus, donors to charity—and the financial professionals who serve them—should likely expect more in terms of attention, oversight, and audits.
According to the plan, “segments of taxpayers with complex issues and complex returns where audit rates are minimal today, such as those related to large partnerships, large corporations, and high-income and high-wealth individuals,” will be areas of focus.
The new-hire ramp up and technology implementation will take some time, per experts, with some believing that 2022 tax returns will be less subject to scrutiny than those in future years. But, the agency also has a three-year window to initiate an audit, giving it time to look back.
Of specific importance to the charitable community is Objective 3, Initiative 4 (PDF page 66 of the plan), which states: “The IRS will increase enforcement activities to help ensure tax compliance of high-income and high-wealth individuals.”
Increasing right along with the enhanced scrutiny is the need for solid charitable planning advice. The community foundation is an ideal partner, offering secure and efficient vehicles for charitable giving—including the precise tax documentation and compliance that the IRS expects.
Indeed, a silver lining for advisors and those who work with The Community Foundation may be that the added potential IRS oversight plays to The Community Foundation’s strengths. By offering donors fully-vetted grantee organizations, plus gift execution, documentation and compliance services, those who’ve established donor-advised, field-of-interest, designated, or other funds at the community foundation can rest more easily knowing that their philanthropy is being handled as intended and able to withstand questioning, whether they are funding their contributions with Qualified Charitable Distributions, highly-appreciated stock, or complex assets such as closely-held businesses and real estate.
The Community Foundation stands ready to help donors and financial advisors unlock the power of philanthropy by providing the tools and expertise to help them achieve their philanthropic goals.
For more information, visit our website or contact our General Counsel & Senior Philanthropic Advisor, Tiffany Purvis at tpurvis@thecommunityfoundation.org