Game of Loans: Income Based Repayment Options vs Refinancing

Earlier this month, my firm hosted a live webinar in our Financial Boot Camp series titled?”Game of Loans: Income Based Repayment Options vs Refinancing “?which was recorded and is now available online.

According to the presenter Alex Oliver from First National Corporation:

?The biggest hurdle for a young doctor to overcome financially is the incredible amount of student loans they walk out of school with. As your friends save to retirement accounts, buy houses, and start families, you’re wondering how in the world you are going to conquer a debt balance that ranges from $200,000 to $600,000! In this webinar, we will walk you through topics such as Revised Pay As You Earn (RePAYE), Public Student Loan Forgiveness (PSLF), and options for refinancing, allowing you to get your financial life started and organized.

Target Audience: Those with student loans or children with student loans

Please view this informative 38-minute presentation at:?

IRS Audit Rate Decreases in 2018

Continuing a downward trend from the prior year, the IRS audited 7% fewer tax returns in 2018 than they audited in 2017. Of the 150 million personal tax returns filed for the 2017 tax year, only 892,000 were audited – a meager 0.59% of all personal tax returns being filed. That rate is the lowest since 2002.

The percentage of tax returns subject to a live field audit was even more meager – with only 169,000 audits resulting in a live meeting between an IRS agent and a taxpayer or the taxpayer’s representative. The remainder of the audits were via computer generated letters sent to taxpayers by the IRS based on discrepancies uncovered by the IRS’ matching program where data filed by employers and financial institutions are compared with income reported on everyone’s tax returns.

Why the continued decrease in IRS audits? The primary reason is due specifically to their budget. In 2010, the IRS’ operating costs slightly exceeded $14 billion. Since that time, the IRS has seen their budget slashed by 17%. A smaller budget has resulted in a smaller IRS work force available to conduct IRS audits. In fact, there are now 15% fewer IRS employees than there were in 2013.

Even with a shrinking workforce, the IRS was able to assess an additional $9.1 billions dollars of federal income taxes for 2017, or approximately $10,000 per audit. The 2017 personal tax returns most scrutinized by the IRS in 2018 were as follows:

  • 2.2% of tax returns that included a Schedule C (sole proprietor)? reporting gross receipts in excess of $100,000.
  • 3.2% of tax returns reporting total income in excess of $1,000,000.
  • 3.4% of International tax returns that were filed.

The lowest audit rate in 2018 were audits of S-corporation and partnership tax returns. Business owners filed nearly 9 million tax returns for 2017 in this category. The audit rate for these tax filings was only 0.2%.

However, this low rate for these business tax returns is expected to change in the near future. The IRS plans to increase audits of shareholder basis that are recorded as part of these tax returns. The IRS’ concern is a lack of taxpayer compliance regarding shareholder distributions and shareholder pass through losses which may be limited if they are in excess of basis. Both of these items result in an under-reporting of personal income by taxpayers.

Will the downward trend in audits continue? Unless, the IRS’ budget is increased in the next few years, taxpayers can breathe a sigh of relief as there shouldn’t be much of an uptick in the audit rates of tax returns in the near future.

IRS Releases New Tax Gap Estimates

From IRS News IR-2019-159, September 26, 2019

WASHINGTON – The Internal Revenue Service today released a new set of tax gap estimates on tax years 2011, 2012 and 2013. The results show the nation’s tax compliance rate is substantially unchanged from prior years.

The gross tax gap is the difference between true tax liability for a given period and the amount of tax that is paid on time.

“Voluntary compliance is the bedrock of our tax system, and it’s important it is holding steady,” said IRS Commissioner Chuck Rettig. “Tax gap estimates help policy makers and the IRS in identifying where noncompliance is most prevalent. The results also underscore that both solid taxpayer service and effective enforcement are needed for the best possible tax administration.”

The average gross tax gap was estimated at $441 billion per year based on data from tax years 2011, 2012 and 2013. After late payments and enforcement efforts were factored in, the net tax gap was estimated at $381 billion.

The tax gap estimates translate to about 83.6%, of taxes paid voluntarily and on time, which is in line with recent levels. The new estimate is essentially unchanged from a revised Tax Year 2008-2010 estimate of 83.8%. After enforcement efforts are taken into account, the estimated share of taxes eventually paid is 85.8% for both periods. And it is line with the TY 2001 estimate of 83.7% and the TY 2006 estimate of 82.3%.

The IRS will continue to vigorously pursue those that are not compliant. The IRS currently collects more than $3 trillion annually in taxes, penalties, interest and user fees.

The voluntary compliance rate of the U.S. tax system is vitally important for our nation. A one-percentage-point increase in voluntary compliance would bring in about $30 billion in additional tax receipts.

Tax Gap studies through the years have consistently demonstrated that third-party reporting significantly raises voluntary compliance. And compliance rises even higher when income payments are also subject to withholding. The IRS also has an array of other programs aimed at supporting accurate tax filing and helping address the tax gap. These range from working with businesses and partner groups to a variety of education and outreach efforts.

The tax gap estimates are a helpful guide to the historical scale of tax compliance and to the persisting sources of low compliance.

“Maintaining the highest possible voluntary compliance rate also helps ensure that taxpayers believe our system is fair,” Rettig said. “The vast majority of taxpayers strive to pay what they owe on time. Those who do not pay their fair share ultimately shift the tax burden to those people who properly meet their tax obligations. The IRS will continue to direct our resources to help educate taxpayers about the tax requirements under the law while also focusing on pursuing those who skirt their responsibilities.”