IRS New JSEIT Unit Will Use Crowdsourcing, Cooperative Inter-Agency Intelligence and Media Alerts to Quash Emerging Tax Fraud Schemes

The Internal Revenue Service is upping its game with a newly formed team to identify and quickly address emerging tax compliance issues. 

Announced in June, the Joint Strategic Emerging Issues Team, or JSEIT, combines expertise from units across the agency, including Criminal Investigation, Tax Exempt/Government Entities, Large Business & International, and Small Business/ Self Employed.

JSEIT’s goal is to act before a tax scheme becomes a widespread issue. Acting as a conduit between taxpayers with compliance issues and the relevant IRS division, JSEIT hopes to provide early communication to prevent abusive fraud. Any transactions that have already been identified as abusive by the IRS will not be in focus. 

So how will JSEIT find these issues? According to the Agency, the group does not have a planned agenda, but instead will rely on communications from the public, from their peers at the agency and by combing through social media posts for potential issues. Their main goal is to quickly identify emerging issues and collaborate with all relevant teams to best address issues of noncompliance. An example would be a question on a scheme that an IRS official receives at a speaking engagement.

The Dirty Dozen

Every year the IRS compiles a list of 12 common scams that taxpayers may encounter, called the “Dirty Dozen.” As many of these schemes peak as returns during filing season, with the help of JSEIT, the Agency will prioritize those that are easily replicable, with the intention to alert the public and try to stop the issue before it becomes prevalent, such as those on the Dirty Dozen. 

Micro captive-insurance companies, (captive insurance companies operating with annual gross premiums up to 2.2 million) are an example of widespread tax abuse that the IRS is looking to shut down. The taxpayer/tax-paying entity forms a company to self insure; providing coverage in exchange for a tax-deductible premium. These captive insurance companies can then elect to be taxed only on the insurance premiums received. However, the company insured by the policies can still deduct the amount of premiums it pays as an ordinary business expense under IRC Sec. 162. Due to these attractive tax benefits as well as potential for tax evasion, the IRS identified these as “transactions of interest” in 2016, resulting in audits and Tax Court decisions that ruled for the IRS.

Other potentially abusive schemes listed on the 2022 IRS report included pandemic-related scams, monetized installment sales and use of charitable remainder annuity trusts.

JSEIT’s agenda is to promote voluntary compliance. Tax professionals and taxpayers should remain vigilant, as schemes can be found in emails, on social media platforms and through online advertisements. It is vital to keep abreast of these trends and changes and seek the advice of a trusted tax advisor with international expertise to help prevent unintended tax crimes and penalties.