Ep. 155 | A Look Into The 2024 IRS Data Book - Teaching Tax Flow: The Podcast

Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
John Tripolsky (00:01):
Welcome back to the teaching tax flow podcast,
everybody. Episode 155 today. Weare looking back in time
technically, but not reallybecause we're looking at the
2024 IRS data book. So if you'renot sure what that is, we did
one of these last year, so shameon you for missing that. But
we're looking at that I shouldsay looking at that.
We're looking at the one thatrelates to tax year 2024. But

(00:25):
before we do that, as always,let's take a brief moment and
thank our episode sponsor.

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Alright, everybody. We are back here
again on the podcast. This time,we're not talking about
necessarily strategies,implementation. We're not really
talking about all that today,but we are gonna give you the
summary. And I say summary is avery, very, very condensed
version of the 94 pages of very,very, very, very, very number
heavy chart graph, everythingheavy IRS data book for tax year

(01:26):
2024.
So, of course, Chris Pacquero,my cohost here, read every
single word of this document.Didn't you, Chris?

Chris Picciurro, CPA (01:34):
Oh, of course.

And you remember it all too, probably. That's the
that's the impressive part.Right?

Oh, man. These the this data book is very
valuable, though. And it it'sfunny because in honor,
September 30 is actually thelast day of the fiscal year end
for our federal government. Sowe thought it'd be appropriate.
We've been wanting we did this,for the 2023 data book.
We're looking at the 2024 databook. We wanna do it in honor of
September 30 here. It was verywell received last year, and it

(02:04):
does tie in a tax planning andstrategy because one of the
three laws of tax planning, taxagencies are your involuntary
business partner. Well, don'tyou want to know what your
business partner is up to? Whatare they looking at?
What are they auditing? Whereare their revenues coming from?
And this is really fascinating.And and I I think that this will

(02:27):
spur some conversation in ourprivate Facebook group,
defeatingtaxes.com, because,again, you you you know, you
don't wanna call them the enemy,but there's that saying, you
know, keep your friends closeand your enemies closer. So
let's take a look at what'sgoing on.

It's kinda like

And this is all public information, I
should say. Yeah. The it'scalled publication 55 b. It's
issued in the very beginning ofsummertime. But, again, we
wanted to hold on to this one,to as close to the fiscal year
end as possible.

I almost made a joke to Chris about it being 94
pages and be like, I know youprinted off this whole thing and
read through it because you justgot back from a a trip to
Minnesota. You were out therewith the NATP, National
Association of TaxProfessionals. Yeah.
Professionals out there. Theyhad a chapter event, so I know
you had some some transit time.

So Absolutely. I had a an honor of
traveling last week to, workwith the, teach a sixteen hour
continuing education course toover two days. Don't worry. We
didn't squeeze it into one. Anawesome chapter of an NATP up in
Minnesota.
About 70 people attended. A lotof interaction, a lot of lively
conversation. I finally had myvoice back, so that's a good

(03:35):
thing. My wife's upset.

Is it is it a good thing, though? I don't
know.

Yeah. It was good when I had that voice.
It's coming back. It was nicewhen that voice was gone. So, it
was an honor to go go, speakwith them and present and, you
know, they, it was it was I feelwell, like, well received, and I
truly enjoyed it.
So we're I was up in the TwinCities. I was expecting it was
gonna be chilly, but it actuallywas pretty warm. Unseasonably

(04:01):
warm. Michigan weather.

You know, you never know what to expect. At
least with the data book here,we kinda know what to expect
with the IRS. Right? And that'ssomething too, I think, you
know, we've touched on brieflyin in other podcasts and all
that. If this is somebody'sfirst time listening to this,
you know, let me kinda prefacethis with something that I was
shocked of years back when Chriskinda enlightened me to this is,

(04:23):
you know, you're not you're notalways you don't have to get a
bill from the IRS, and you'restuck with it.
Right? You can take ownership ofthat through tax planning, and
that's a little bit what we'regonna talk about. Chris, I like
how you did mention that. It ispart of this because this is
showing, you know, where a lotof their resources are going as
far as for, like, anorganization, right, and their
time and and everything.Absolutely.

(04:44):
Cool stuff in here.

Well, let's talk yeah. Let's jump into
we're gonna definitely touch onthe audit percentages and what
we think is getting examinedmore. Let's talk about tax
collections in general. By over$5,000,000,000,000 of gross tax
was collected, and 54.2 of thatabove. So over half of that is
coming from individual incometax.

(05:05):
So tax US taxpayers likeyourself, myself, people
listening, about 32% or a third,32.6% came from employment
taxes. So remember, if you're anemployee, you are paying in
employment taxes, SocialSecurity, Medicare, and then the
employer is matching that. Butif you're self employed, you're
paying the self employment tax.So that's about a third. Then

(05:27):
business income taxes was onlyabout 11%.
So remember, we have a lot offlow through entities, s corps,
partnership returns, singlemember LLCs, that that tax is
paid on the individual or oremployment level. And then the
remaining amount, which is avery small amount, is or would
be a state excise tax and gifttaxes. So that that's where

(05:48):
we're that's less than well,less than 10%. So by far, over
50% of the tax paid areindividuals. Another third would
be employment taxes, which ispartially individuals.
Right. The IRS processed over266,000,000 tax returns last
year. A 161 a million of thoseare individuals. So, that means

(06:11):
that there's a 105,000,000 taxreturns that are the IRS
processed that are not form 10forties. And the point is your
when we think about taxes, lottimes we think about the ten
forty.
Right? But remember, that's 160out of the 266 ish million

(06:33):
returns that were filed. Thereare a lot of other tax returns
getting filed with IRS.

And these are I mean, I wouldn't say these are
shocking numbers to mepersonally this time because
last year we looked at this, andI think my jaw just continually
kept dropping at the stuff thatwas in this. Because really, you
don't I mean, personally, again,I know there's a lot of it. I
don't really I've never seenanything until the one we did
last year that had all this onwrite sheet. Right? And and no

(06:58):
wonder that the I wouldn't saythe push.
It's the decision to go almostsolely e file is there. We go
mean, we're talking 200something million returns. I
mean, we could get really nerdyone day and break down how many
employees they have that areprocessing these and how many
you know, how much time theyhave per return to do this and
and all kinds of stuff. Mhmm. Wehave better things to do with

(07:19):
our days.
Right?

Well, think about this. When I first
started in this business, weweren't efiling tax returns. And
now it's mandated for preparersto Well, you

guys were making your own paper back then. Wasn't
that called paper?

We cutting up trees in the back. We had a
whole mill we set up. Smelledgreat. It smelled like sulfur.
You ever tried

to go

to paper mill town?

Yeah. I used to live by one. Remember in South
Carolina? The wind blows thewrong way. You're like, woah.
What is this? Glue.

Oh, for sure. Oh gosh. I'm trying to
remember that it was North ofMount Pleasant when I saw it. It
was between Myrtle Beach,Georgetown. Right?
Isn't it Georgetown?

Yeah. I think there's one. Yeah. I forget the
name of the company, butGeorgetown and then North
Charleston, I think there wasanother one too. But, yeah, they
were, smelled a little pulpy.

It was pulpy. However, you know

It was fun. Can win everything.

At least you didn't live there. Right. So
that's a good thing. So 90 over93% of tax returns are filed
electronically, which is prettycrazy. Ninety three percent.
The IRS has been under highscrutiny for their lack of
service. Now they are losingpeople, but they did answer
20,000,000 live phone calls lastyear.

That's a lot.

20,000,000 live phone. And the irs.g0v,
which is the IRS's website, had690,000,000 visits, With over
half of them being where's myrefund? Right? 383,000,000 of
the six ninety are just peoplewondering where their refund is.
Fascinating.

(08:51):
I'm sure they were they're gonnawe're gonna have a they're maybe
they could put some ads on thereor something to

catch up Charlie. About that too. You
know, that that being the thenumber one question that's going
in there. I think me and youhave done a better job promoting
that the IRS actually has amobile app. Mhmm.
On at least I know on iPhone.We've mentioned it a couple of
times about this. I've neveractually seen or heard anything
from the IRS saying that,believe it or not. So think

(09:20):
about how many calls they may bewell, let's be honest. Yeah.
I probably wouldn't call themanyways, but they, you know,
they gotta do a little bitbetter job of that. But we're
happy to help out if they wannareach out. You know, we can get
mad. Mhmm.

So let's talk about enforcement because I
there are tons of information inthis data book, but that what
people really wanna know iswhat's going on with
enforcement, meaningspecifically audits,
examinations, right, oftaxpayers. So the IRS is
currently using we know thattheir their staff their their

(09:54):
funding and their staff andtheir team count is down. Right?
And their their population ofof, employees is probably more
mature aged if I had to guess.With IRS You're probably right.
Continuing to use data analyticsdata analytics, easy for me to
say, AI and new technology toenhance their enforcement

(10:15):
capabilities is what you have wegotta remember is a lot of these
forms that you receive are sentto the IRS as well. Could be
your mortgage intereststatement. Could be your w two,
bank interest, a ten ninety nineof one way, shape, or form. So
the IRS is doing its best toquickly as possible using
technology and AI and dataanalytics, match what's on

(10:37):
what's called your taxtranscript with which what with
what is actually filed. Now noteverything.
So everything on your taxtranscript, you should report on
your tax return, but there are alot of things on your tax return
that are not on your taxtranscript, and that kinda gets
gets challenging when when itcomes to IRS enforcement.

And I think just on the tech side too, I can
think of an example whichthey're probably gonna get a lot
better at, right, as, like, ascenario where, say, there's two
people doing business together,say, your friends, whatever.
Somebody pays you what iscalled, hey. I'm gonna give this
guy $1,500 for their service andcash. They they document it.
They account for it on theoutgoing side.

(11:19):
But maybe, you know, Joe overhere is like, oh, I got cash. I
don't have to say anything aboutit in my business. So I'm sure
they're gonna do a lot betterjob of matching that it's
correct on both sides of thefence or at least be able to get
flag it easier. Right? So toalleviate some of that, the
manual work.

And these $10.90 nines are are need to be
efiled now because before you'dmail them in, it was it was in w
twos or get mailed in, and it'sit's just come a long way. You
know? Yeah.

It it do have anything to a hit.

I'm sorry?

The postal service is gonna take a hit.

Oh, they have already. I mean, I was
talking to actually,

one

of the attendees from the Minnesota
event last week, was so nice totake me to the airport because
she lived near there. And shepointed out, hey. There's a post
office in the airport before,but they they you know, it's
like a third of the size. And weare reminiscing. I was thinking,
I remember when I first startedin this business, I was right in

(12:18):
the shift to efiling.
So the early two thousands wherepost offices would have the news
would be there, of course. Andthen if all the workers out
there stamping tax returnsbefore midnight on the
fifteenth, your birthday,obviously, and putting them
into, the postal service andthinking, gosh. That doesn't

(12:40):
happen anymore.

Right. It'd be like tax day, quote, unquote,
air quotes. Again, tax day. Taxday sponsored by Band Aid for
the paper cuts for those poorpeople.

Oh, man.

Times have changed.

Talk about these audits. Alright? We a
friendlier way to say isexamination. But IRS audited
605,000 individual tax returnslast year. 600 now that sounds
like a lot, but that really onlymade up point 38% of all the

(13:16):
filed returns.
Pretty

interesting. And I and I think that's the
important number there is thepercentage. Right? Because we
get asked that a lot. I feellike at every conference we go
to, real estate ones especially,you know, people are like, oh,
is that gonna increase my auditrisk?
Like, that's the that's theinfamous question. Right? And I
I believe, like, your responsealways is, we don't really know
what that is. I mean, there'scertain things you can do that

(13:40):
are, like, almost guaranteed redflags. But, you know, by
claiming home office does notautomatically increase

Correct.

Audit risk. Correct?

Correct. I mean

I want that

to go on record,

by the way. That that's the second thing that
I've pulled out in reference.Right. Almost a substantial

Chris Picciurro, CPA: depreciation recapture. So the (13:56):
undefined
additional tax recommended fromthese audits. Right? And and
we're not saying that the tax isactually due. If you are
audited, you have a right toappeal it.
You have a right to talk throughit, but the IRS has additional
tax recommended on that was605,000 audits of individual
returns was $7,100,000,000.That's an average of about

(14:20):
11,700 of additional taxrecommended per audit. Now I'm
sure there are people out therethat got assessed millions and
millions of dollars. There'speople that got assessed a
couple $100, but it's justinteresting. So less than a
third percent of filed returnson the individual are actually
examined with the average ofabout $11,000 assessed.

(14:43):
I kinda you know? So that that'sinteresting. Now let's talk
about business returns. Right?Business returns, 38,057 returns
were examined.
Those are s corpse, c corps,etcetera. $15,000,000,000 of
taxes recommended. Right? So onetwentieth approximately of the

(15:04):
returns examined, but double thetax assessed recommended. The
average is about $400,000 perbusiness.
Now it could be skewed. Right?You could have one corp that
owes billions and bill you know,a billion dollars itself. But
I'm just saying, you know, as welook at that. And then, you
know, partnership returns, only13,200 approximately partnership

(15:28):
returns were examined.
That's form ten sixty five.That's a very low, that's less
than onetenth of 1% of thosereturns. So if you think about
pure audit risk for an LLC,we're not suggesting you are a
multi member LLC. But if you amulti member LLC has a lower
auto risk than a schedule c,meaning a per sole proprietor.

And here's kind of a loaded question for you and
and more of an your opinion onit. So those partnerships,
right, we're seeing a low a lownumber there. Right? Mhmm. Is
there a reason why that may be?
Like, are they kind of forced tokeep their stuff more in their
books more in order orsomething? Right.

I mean, yeah, partnerships, the vast
majority should be reporting abalance sheet. They're typically
gonna have more sophisticatedaccounting, due and and they're
they're gonna issue k ones, andand partnerships don't pay
federal tax. However, ifpartnership if there's an
adjustment to the partnershipreturn, then individuals might

(16:28):
have tax on that.

So I wonder if these examiners too have, like
you remember the Staples easybutton where you, like, smack it
and it says something? I wonderif they have something, like, on
their desk, and it's like agotcha button when they're
getting, bam. You know, I justgot an

extra You know what?

I don't billion dollars.

So My my impression is and I don't do a
ton of representation work, butmy impression is is that they
are just like everyone. They'retrying to move cases along their
desk. They get one slapped ontheir desk. It could be
targeted. It could be ananalytical thing.
Could It be just a random.Sometimes IRS says, hey. We want

(17:05):
us to have a sample size. Sowe're just gonna go audit a
random 100 returns with onething on it just to see if we
see trends. And they're looking.
And if they don't see what somebad stuff, then they stop
looking, and they might assess.If they start seeing really bad
stuff, so they keep they digdeeper. So what I want you to
think about is when you getaudited by the IRS, what happens

(17:28):
is you just got pulled overgoing five maybe five over in a
in a in now if the IRS comes toyour car, you don't have your
seat belt on, you've got a beeropen, drink you're drinking,
you've got illicit drugs in theback, you've got stolen weapons,

(17:48):
You've got you know, you have awarrant out for your arrest. It
can go bad quickly. So that's aso you you just have to work
with them and give them whatthey need.

That's a great you know, I think you pulled out
a couple good analogies today.I've had Once in a while. An
hour. We're talking before. Thatthat again is a really, really
good one.
And I think the importance ofyou saying in that way is is,
you know, even though we jokeabout the IRS and the gotcha
bot. Like, we don't wanna wasit, like, villainize or vill
vilify, whatever that word is?Like, they're not bad people out

(18:19):
to get you. Right? A lot of it,like you mentioned, is kind of a
systems that they're workingthrough trying to find things.
Because otherwise, how wouldthey find it? Right? Like, they
might find an area code thatpeople are claiming, I don't
know, home office deductions,and the average house is a
thousand square feet, andthey're all claiming 15. Some
crazy like that. Right?
Like, I'm sure that's how theyfind it. So, yeah, that was a

(18:40):
great example. Like, you're theonly reason you got pulled over
is because they're looking forsomething potentially We're

not saying to beat seat belt rule. And then
all of a sudden, it it gets out.So let's talk about examination
rates by income. The the databook gives us some indication of
an estimated audit rate for2024, and some of this is
surprising. So the less than$25,000 income folks are at
about a 1% audit audit rate,which is five times more than

(19:13):
people that make 25,000 to a100,000 10 times more than
people that make a 100,000 to$500,000.
Like, why would the un less than$225,000 people, I'm gonna put
this little caveat in there,that has an earned income tax
credit. So there's a lot offraud, unfortunately, in the
earned income tax credit world.And for that reason, about 1% of

(19:34):
those are are examined. Aboutone out of every you know, point
2%. So if you think about oneout of every, you know, what,
one out of every 500 returns areexamined at the two 25,000 to a
100,000, and one out of aboutevery thousand returns, the 100

(19:56):
to five hundred Five hundredthousand to a million, probably
about point 6%, and then amillion to $5,000,000, about 1%.
And then if you're over$5,000,000 of income, you're it
the it's it's about, you know,somewhere between 510%. We don't
know the exact number, butthat's estimate.

Right. And then and looking at that all spread
out too, we'll put the link tothis, PDF to for this year in
the show notes here. And if it'sstill out there, we'll put the
one for last year too if anybodywants to reference it. But,
mean, really, makes sense whenyou look at that as a comparison
table. Right?
Once you get over five was it5,000,000 plus? Was that last
one where where it's kind of atargeted number?

Of income.

Yes. It it makes sense. Right? Because that's
those get very complex, I'msure. And there's a lot of
things.
Not saying things are donemaliciously every time, but
things can slip. You know? It iswhat it is. And it I mean, I
don't I I give them credit forfor going that route, I guess,
really.

What I'm gonna wrap up by talking through
audit, because when we thinkabout audits, many of us think,
like, you're gonna get somerandom person knocking on your
door. Right? You so the IRS haswhat they call a correspondence
audits. That means they mail youa letter. And and if you get
that, we have content about whatthe heck you should be doing.
You should definitely talk toyour tax professional
immediately if you get thatletter. And, typically, it's

(21:11):
targeting one item. Right? Andor you could they have what they
call field audits or in personaudits. Now that doesn't mean
that they're going to yourhouse.
Those audits are typically gonnabe conducted face to face, and
they're typically gonna be ingeneral at at an IRS office. You
can absolutely hire an enrolledagent, a CPA, or an attorney to
represent you in on your behalf,and that's typically what

(21:36):
happens. The correspondenceaudits are about 85 to 90% of
all the audits. And then withthe the in person audits or
field audits, only about 10 to15%. And the most of the
correspondence audits arefocusing on the lower income
taxpayers when they're reallylooking at that earned income
tax credit, returns with, like,refundable credits, and just

(21:56):
math and and verification anddocumentation errors or or they
might be auditing.
We've had clients. They would bewere very generous one year, and
the IRS audited just theircharitable contribution because
it you know, maybe theyinherited a bunch of money that
wasn't taxable, they decided togive a lot to charity. Well, the
IRS doesn't know that. So theymight have taken a charitable
contribution deduction, and theymight send them a letter

(22:17):
auditing just that charitablecontribution. Contribution.
The field audits are gonna bethose higher income business
owners, more complex businesses,international issues, and large
schedule c or self employedclients. So those are the the
trends that we're seeing. Andand, obviously, when you you
know, if you're a professionaltax preparer, we we prepare

(22:37):
returns assuming they're gonnaget audited. We have to be
organized. We have to have workpapers because it could be two,
three years down the road wherethe client gets a letter, and,
shoot, we could barely figureout what we did a week ago.

Right. Right. And that's and that comes down
to two. I know we've we'vespoken it many, many times, you
know, when it when it comes toreally choosing a tax prepare
tax professional. Right?
Find somebody to get along with.I mean, nothing nothing would be
worse than, hey. I got thisnotice of an audit regardless
what kind it is. And, you know,say you don't get along your

(23:10):
buttheads with your with yourtax preparer tax for all the
time, and they just look you andsay, I told you so. And people
be

like, well

well, like, what do I do? Like, you you wanna be
with somebody that gets you. Andthe field audits, those are
things I know we talked about.We I mean, this is one of the
earlier podcasts we did is Ithink we referred to the IRS as
Darth Vader on that one. But itwas the the biggest mistake I
think that that I still takefrom that is that if you get one
of those in the mail, don't, youknow, open the damn letter.

(23:39):
I think it is, like, verbatim ofwhat what our guest Andrew Pulis
was saying. Right? Like, don'tlet it sit there, and then, oh,
crap. This was nine months ago.I'm avoiding it.
I'm procrastinating because Ithink it's terrible news. It
could be something as simple as,like you said. What is it? Like,
a a c p

CP 2,000 is your most common notice.
Absolutely.

On record, sir, that's two things that I know

Right.

In your world. Yeah. Yeah. Anyways.

Hey. You know what? Walk off on on a high
note like George Costanza.

I'm done, man. I'm gonna I'm gonna do the
moonwalk out of my office herein a minute, but thanks for
running through these with us,man. I know Yeah. You know,
we're both kinda looking at thisdata book as we're talking
through this. Lots of stuff inthere.
Honestly, best recommendation Igive for somebody on this to
make your life a lot easier,don't print it out. You will
kill a small tree, literally 94pages. Not to mention, it'll
kill your printer. But open itas a PDF. Search in it any

(24:28):
keywords you want.
There's a table of contents inthere. It's actually pretty
interesting. Like, even ifyou're not going into it in the
fact of nerding out, there'ssome pretty interesting stuff in
there. You might find yourselfdigging in deeper than you
wanted to. But on this one, Imean, I look forward as always
to our next show, but I lookforward to looking at this next
year and kinda seeing how thingsroll out.
But, again, links in the shownotes. Check that out. Two other

(24:49):
things for you really quick.One, anybody that's listening or
watching this, don't be lazy.Subscribe to YouTube.
Subscribe to the podcast. That'sone thing. Second, get on
defeatingtaxes.com. So that'sour private Facebook group, for
teaching tax folk. We post stuffin there, but it's mostly driven
by community members, tons oftax pros, taxpayers, collection
of everybody around the country.
Get on there and just let usknow what you think. Maybe we'll

(25:10):
post a couple questions inthere, get things started up.
I'm kinda curious what peoplethat aren't in this all the time
think of this data book, like ifthey're surprised or how it
goes. So, yeah, don't be shy.Post something that you can post
anonymously if you want to, butcheck it out.
We do have a great episodecoming up as we always say.
Great guest next week as well.Somebody that has a has a pretty

(25:30):
good insight on a couple ofthings, but you have to wait to
find out. So we'll see everybodyback here again next week on the
teaching tax flow podcast.Different date, same day of the
week, completely differenttopic.
Have a great week, everybody.

Disclaimer (25:46):
The content provided is for educational purposes
only. We encourage you to seekpersonalized investment advice
from your financialprofessional. For all tax and
legal advice, please consultyour CPA or attorney. Investment
advisory services are offeredthrough Cabin Advisors, a
registered investment advisor.Securities are offered through
Cabin Securities, a registeredbroker dealer.
The content of this podcast doesnot constitute an offer of

(26:07):
securities. Offerings can onlybe made through an offering
memorandum, and you shouldcarefully examine the risk
factors and other informationcontained in the memorandum.

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Ep. 155 | A Look Into The 2024 IRS Data Book

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.css-14f5ked{margin:0;word-break:break-word;display:-webkit-box;-webkit-box-orient:vertical;box-orient:vertical;-webkit-line-clamp:2;overflow:hidden;}Ep. 155 | A Look Into The 2024 IRS Data Book