The Inflation Reduction Act is a big piece of legislation with big impacts for everyone. I’m going to break down the effects over the next few weeks, starting with what impacts my clients the most.
The first topic is the expanded enforcement of the existing tax rules. The IRS budget will grow by $79.6 billion, including about $45 billion for enforcement.
The new budgets and priorities mean people who cheat on taxes are more likely to face the consequences. Not only is the IRS increasing its existing enforcement mechanisms, but it will have $7.8 billion to modernize its systems. In a nutshell, more boots on the ground to catch you and smarter computers to catch you.
“The night is far spent, and the day is at hand. Let us then throw off the works of darkness and put on the armor of light.”
Romans 13:12
As part of the ethical code we follow, we choose tax positions based on the laws and applicable guidance. That means we treat every case assuming we would need to explain it to an auditor. In the climate of increased enforcement, my clients don’t need to worry about how we chose to report something.
Changing advice based on the likelihood of an audit is an overtly unethical act.
In a nutshell, tax preparers have an ethical responsibility to recommend tax positions based on the tax law and applicable guidance from reliable sources like the IRS, US Courts, or the Department of Treasury. Anyone who advises a client on a tax position based on the principle of “How would they know?” is effectively stealing money from the government.
There are two ethical frameworks to consider. First, the AICPA Statement of Standards for Tax Services (SSTS), which states, “A member should not recommend a tax return position or prepare or sign a tax return reflecting a position that the member knows: exploits the audit selection process of a taxing authority[…]” (SSTS 1-7). Second, the IRS rules require that professionals may not “take into account the possibility that a tax return will not be audited” (Circular 230 §10.37(a)(2)(vi)).
I’m sure some people take pride in lying to the government and disregarding their ethical responsibilities, but Delagify Financial tells our clients and the IRS the truth. We use planning and legal skills to save clients, not obfuscation and deceit.