irs

Why the Inflation Reduction Act of 2022 Should Worry You

You’ll have to journey with me a bit, before you see that this post is not quite what it seems. . .

No, Internal Revenue Service (IRS) will not be hiring 87,000 special agents. I’ve written about this in several places (beyond this blog), because I cannot stand sensationalism. It’s an abundance of emotion and an absence of sound, factual research that makes me shake my head in disappointment. I usually point to it as a failing of the US education system, but it is often information spread by “learned” people that are experts at exploiting the vulnerabilities of others (including the lack of critical thinking displayed by many) behind the outrage and fallacies being shared. I explained all about the misinformation regarding IRS hiring over on LinkedIn, but I’ll share a copy of that text below, as well.

Photo by energepic.com on Pexels.com

As written August 11:

In July, I posted on my blog that the Inflation Reduction Act, if passed, would allocate $124 billion for IRS tax enforcement. I also stated that this meant more IRS collection jobs would be announced. These jobs would be revenue agents and officers, auditors and specialists, etc.,.

Imagine my surprise when today, I saw the rumors of 87,000 SPECIAL agents being added to IRS. I laughed immediately, because I know the difference between a special agent and a revenue agent, and I also chuckled because I knew that there was NO WAY that IRS would double their workforce by hiring special agents exclusively. Special agents do not consistently collect enough money for IRS – with a current staff of 82,000 – to bring on a group SPECIAL agents than exceed the number of staff they have currently.

There is a difference between revenue agents and special agents. Revenue agents are auditors and unarmed. They do the bulk of the audits conducted by IRS. Special agents are law enforcement, just like FBI and CIA agents. FBI special agents have strikingly similar job duties. IRS’s special agents are armed, because they go to FLETC in Georgia. No official sources have confirmed this 87k hiring boom, and several sources indicate that this is a rumor at best. This rumor came from a poorly comprehended report and a desire to sensationalize a hot topic that few people actually understand.

But, I’ll play along and pretend the 87k hiring rumor is true. Assuming that IRS does hire 87k ppl, I assure you that the majority of those ppl will be tax specialists, revenue officers and revenue agents, not special agents, who really don’t generate revenue consistently enough to justify this type of hiring push.

Please continue to read, read, read, and use your power of discernment. Don’t go by what one source says (even if the source is this post!) If I’m wrong, then I’ll personally put up another post admitting it. But I’m pretty sure I’m not. I just want you all to continue to be wise, be alert, and watch out for those that monetize and exploit your outrage.

I wrote a detailed post in late July about the potential impact of the Inflation Reduction Act of 2022 (IRA 2022), and it’s most likely effects on tax law (you can read that here). Yet still, several days after IRA 2022, I see lawmakers actually spreading the same tripe as quoted by careless Twitter users that have never worked at IRS and, prior to IRA 2022, were completely unaware that IRS has special agents, which are not the same as revenue agents.

Photo by Karolina Grabowska on Pexels.com

The whole quote of 87,000 agents that IRS will be hiring? It was an estimate proposed last May, that is in no way a definite plan for this year, just a “wish list” that I, as a federal employee, can confirm is hopeful at best, and IRS would be lucky to hire and retain half of this amount. The hiring levels rarely meet the amounts that agencies project, simply because turnover still happens, other hiring takes priority, and some people will leave because of termination, resignation, or transfer to other agencies. Also, this is a projection for a 10 year hiring plan, because there isn’t enough staff or resources to possibly train 87,000 agents within the next year. The IRS has recorded a record low of auditors and agents, with numbers being the lowest they’ve been since World War II.

Cries about these auditors and agents targeting people earning less than $400,000? Accurate on the surface, but it takes a little digging to understand a critical point. The assertions about people earning less than $400,000 came from Secretary of the Treasury Janet Yellen, who stated something that many completely disregarded (or simply were unable to comprehend): she directed that, “any additional resources—including any new personnel or auditors that are hired—shall not be used to increase the share of small business or households below the $400,000 threshold that are audited relative to historical levels.” That historical levels part really tripped up the speedy (non-critical) readers, and caused all manner of histrionics. According to IRS, these agents, “cannot simply be assigned to global high wealth, partnership, or large and complex business examinations without the requisite skills, training, and experience to analyze returns that are highly complex[…]”; that means they will have to practice honing their audit skills prior to get these $400K+ returns. And, since the historical levels have been much higher than they are currently, you can reasonably expect that some individuals earning less than $400K per year will be audited because, historically, they were. I’d be worried if you follow advice from people who refuse to read for clarity, and who jump on catchy soundbites that suit certain narratives.

Again, to be clear, no one said that all individuals earning less than $400K would be audit free: EVERYONE has noted that the audits for this group shouldn’t go up disproportionately. Only time will tell whether this will happen, but on the outset, realize that Yellen never said that people earning less than $400K were exempt from audits. Many skipped over this part because it didn’t serve a narrative about IRS being the horrible bullies that mistreat every American that cross their paths.

As I stated above in my post from LinkedIn, one source is not enough, and exploitation and monetization of outrage is exactly what certain influential groups desire. I’ve read information from IRS, Government Accountability Office (GAO), and Congressional Budget Office (CBO), as well as groups that disagreed with the measures, such as The Heritage Foundation and a statement from the Republican House Budget Committee Members. I’d caution most people to read multiple sources – from a variety of perspectives – and to ask, “Qui bono?” (Who benefits?) as you read. The same people criticizing certain tax legislation often organize groups, movements, and products designed to get money from their supporters/readers. The same can absolutely be said for those that are eager to support tax legislation, without offering critical analyses of how they have reached the conclusions they so eagerly share on their platforms and social media at large. In short, hot takes are rarely supported by the amount of analysis needed to make a balanced and fair assessment. These groups KNOW that, and capitalize on it.

Photo by RODNAE Productions on Pexels.com

Our rapt attention is currency (hence the phrase, “Pay attention”). Be mindful of how your attention has been monetized by the people whose opinions you adore: most of them are pandering to our worst fears because it is (and always has been) a lucrative gig, and it’s a far more profitable angle than giving balanced, neutral opinions that neither stir hope nor fear in our hearts. Our biggest worry about IRA 2022 should be all of the people trying to cash in on our worries: they’ve figured out how to “sell shovels” to us and many of us don’t even know it.

Avoiding Gift Tax – Make Sure The Checks Clear!

Recently, I discussed the issues surrounding the estate of Aretha Franklin. From the sources that I reviewed, it appears that she did not intentionally reduce the size of her estate through gifting to her heirs before her death. It isn’t required that people reduce their estates through giving, however. . . With an annual ceiling of $15,000, affluent individuals of advanced age may prefer to distribute a portion of some inheritances before their death, to avoid taxes to both themselves as well as the recipients.

For those that choose to give before death, whatever you do, make sure your heirs cash those checks as soon as they receive them! A recent tax case (Estate of de Muth v Commissioner) determined that if a check isn’t cleared before a person dies, the checks become part of the estate, and therefore subject to estate tax. Of course, gifters can’t force recipients to quickly cash checks given to them, but if the intent is to ensure that the size of the estate is reduced, then time is truly of the essence.

I was interested in Estate of de Muth because it was always my understanding that it was the date of gifting, and not the date of cashing, that determined when a gift was given. But with the tax courts determining that the act of gift giving occurs upon cashing the check, I now have a different perspective regarding gifts and what constitutes receipt. This is why I love staying aware of the changes with the tax law: you never know what you’ll learn!

Aretha Franklin’s Messy Estate – Key Takeaways

A couple of weeks ago, it was announced that Aretha Franklin’s estate has settled a nearly $8 million tax bill, and the way has been cleared for her four sons to start receiving payments from the revenue generated from the use of her image and music. This outcome was a long time coming: Franklin passed four years ago, and her heirs have been unable to settle the estate issues until recently. This development is excellent news, as this opens the way for her sons to start receiving the benefits to which they are entitled.

I won’t rehash all of the details of the case, however, I will highlight some key takeaways that I gleaned as I learned about the messy estate left behind by the Queen of Soul:

  • Destroy previously executed wills. For most people, their end-of-life planning only covers the execution of a will (if they’re proactive). Sadly, some people don’t even do that much planning: far too many people die intestate, leaving their estate planning in the hands of the state where they lived and died. But I digress . . . Leaving a will clarifies how you want your property to be distributed after your death. However, this distribution becomes unclear if you have multiple versions of your will floating around. So, consider destroying previously executed wills whenever you make a revision. The estate is currently comparing 3 different versions of Ms. Franklin’s will, and I’m sure the probate courts will have a field day trying to figure out which one is the one that will be honored.
  • Set up a trust. If you only have a will, you’re doing better than many people. But if you really want to simplify how your assets will be handled, a trust is what you need. Trusts can be established to distribute assets before and after death, they can help avoid certain types of taxes, and they can provide an extra level of clarity that may not be accomplished through the execution of a will alone. Consulting with a trust attorney is a great idea, even if it turns out that a trust isn’t advantageous for your specific circumstances. These attorneys can answer many of the questions you may have related to other estate or end-of-life financial issues.
  • Consider gifting some of your possessions while you’re still alive. The current ceiling for tax-free gifting is $15,000 per person that you choose to gift. Even if you aren’t giving everyone you know $15,000, you can certainly gift some of your possessions now, so that your heirs can avoid gift and estate taxes later.

Those are three of my takeaways from the tax agreement between IRS and Aretha Franklin. I’ll keep an eye on this case to see if any additional developments arise, and if so, I’ll be back with updates. Take care!