Avoid Becoming One of the IRS’s New Targets

New laws, changing demographics, and a new budget cause the IRS to shift its priorities. Many people who don’t pay attention will fall into the IRS’s snare.

The new estate tax law means far fewer estates will be subject to taxes and need to be audited. The IRS plans to move many of its estate specialists to checking on gift tax returns, especially returns that weren’t filed. The IRS can impose penalties for unfiled returns even when no tax was due and the estate isn’t likely to be taxed.

You might have to file a gift tax return, even when no gift tax was due. See the February 2013 visit for details. The IRS is searching for people who failed to file required gift tax returns. One way they’re doing that is by searching real estate title records around the country for title changes without transfers of money or mortgages.

IRAs also are going to receive more attention, especially for mistakes in contributions and distributions.

Likely targets of new IRS attention are excess contributions, failure to take required minimum distributions, and miscalculations of RMDs. Mistakes by those inheriting IRAs, which we’ve covered in detail in past visits, also are in the IRS’s sights.

Your best strategy is to review past transactions and correct any errors and oversights. You might owe penalties and interest, but you’ll owe more if you wait for the IRS to find your mistakes.

RW March 2013.