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Get ready for even more incompetence at the IRS in 2023

The IRS is hiring 87,000 agents, thanks to President Joe Biden’s 2021 infrastructure package, but they won’t be fully trained for three years.



The IRS is hiring 87,000 agents, thanks to President Joe Biden’s 2021 infrastructure package, but they won’t be fully trained for three years.

The Internal Revenue Service is hiring 87,000 new agents, but taxpayers will not feel the pain for another two to three years. That’s how long it will take the agency to hire and train agents. Few have discussed the extent of this pain. Still, it’s something to think about when you consider the majority of coming audits will be conducted by new agents, many of whom will have been hastily hired and operating with minimal supervision.

Playing the audit lottery will not be smart in future tax years. Taxpayers should protect themselves now, especially when profiting from statutory gray areas — such as cryptocurrency staking, investing through decentralized autonomous organizations (DAOs) and other decentralized finance (DeFi) products.

When I started my career in the mid-2000s, business audits were standard, and the new agents were always the worst with which to deal. You had to explain everything in detail to them like little children, and they still would write up non-factual summaries or incorrect legal opinions. That required escalating cases for a manager to review or file an appeal. New agents were also often uber-aggressive, fighting over small changes to build a reputation for always having major tax increases in the audits they took on.

Don’t get me wrong. The IRS needs to hire agents. The situation for the last few years has been nothing short of a nightmare. Good luck reaching an agent to resolve a tax issue! In 2021, the IRS received 282 million telephone calls. Customer service representatives only answered 32 million, or 11 percent, of those calls. The IRS certainly needs to hire more staff to answer phones and resolve issues within a reasonable time.

Related: Biden is hiring 87,000 new IRS agents — and they’re coming for you

The trouble at the IRS dates back to 2011, when major budgetary cuts led to a hiring freeze across the board. The total number of workers at the IRS has fallen massively, from 94,711 agents in 2010 to 78,661 full-time equivalent employees in 2021. This means that adding 87,000 revenue agents will more than double the size of the current IRS!

Add to this the roughly 20,000 agents eligible to retire at the IRS right now, and the IRS will need to hire more than 107,000 agents in the next few years. Thus, two out of three IRS employees will be total newbies in three years. In a perfect world, this could lead to a startup-like culture at the IRS, with innovations and a culture of making a difference. Yeah, right. This is the government. They won’t run things efficiently. And these agents who are tracked on their performance will go for the low-hanging fruit with taxpayers they can bully into big changes on examination, meaning a big increase in small business and individual audits.

Sources of federal tax revenue in billions, 2000-2021. Source: Cato Institute

However, we won’t see much of an increase in audits for a couple of years. It will take a while for the IRS to find enough hires though to fill all those seats. The hiring freeze was lifted in 2019, but because of the pandemic, actual net hiring has not yet occurred. In 2021, the IRS lost 14,500 employees due to retirement or separation but gained only 12,500 external hires.

This failure in hiring wasn’t from a lack of trying. In 2021, I was inundated with Facebook ads and recruiter messages, but they still couldn’t even hire enough agents to fill the seats of those who were retiring. So one certainly has to ask, how will they find over 100,000 new agents? And will their hiring standards drop substantially to get enough warm bodies in chairs?

Then it will take even more time before we see these agents in the field. Once a revenue agent is hired, there is another one to two years of training before they are unleashed on the public.

The most likely agent you will meet, a “Small Business/Self-Employed Revenue Agent in Field Examination,” requires 1,888 hours of training. At 40 hours per week, this amounts to 47.2 weeks, which is almost a year after vacation and personal time. A “Special Agent for Criminal Investigations” requires 3,904 hours of training, or closer to two years, to get up to speed. Even a “Customer Service Representative” needs 1,500 hours of training, or more than nine months — to answer the phone lines!

While the IRS has been dwindling in size and struggling to replace retiring agents, the tax laws and technology-based financial transactions have become increasingly complex. The Tax Cuts and Jobs Act (TCJA) in 2017 was the first major overhaul of the tax system since the Tax Reform Act of 1986. Five years after passing the TCJA, not all the provisions have been implemented yet. Who knows what strange memos might start coming out in these not-yet-interpreted areas? Then there are all the gray areas created by different types of cryptocurrency transactions, staking, DAOs and DeFi, with many unique fact patterns for which the relevant laws have yet to be interpreted by the tax courts.

The antiquated IRS computer system further adds to the challenges faced. The IRS still runs on a mainframe computer system from the 1960s that is coded in Cobol. Few current programmers know Cobol, and the IRS has struggled to modify its systems. During the pandemic, a revenue agent admitted to me on a call that the IRS did not have the code to pause the system that mails out automated delinquency notices to taxpayers.

For the last 20 years, the U.S. Treasury has been spending billions a year to develop a new tax computer system, but there never seems to be a clear timeline of when this system will be released. It always seems about five years out with the ever-floating deadline. Because of this lack of decent computer systems, a lot of tasks at the IRS are still performed manually. The IRS has about 60 case management systems that are not interconnected; each function’s employees must transcribe or import information from other electronic systems and mail or fax it to other departments.

Related: Tips to claim tax losses with the US Internal Revenue Service

Despite all these challenges, the IRS is already signaling that they intend to start doing substantial business audits in future years. It has been years since the Coinbase John Doe summons, and the IRS still has not done the expected bulk audits, so with staffing increases, these will probably start increasing.

Since the pandemic, transfer pricing audits have ground to a halt but will surely pick up again soon — and I expect many crypto businesses to be the target of these audits as well, especially those in DeFi with cross-border lending transactions. And then for R&D, the IRS has issued two memos in the last year requiring full due diligence and documentation to be done before preparing the tax return, but the R&D credit mills predatorily targeting startups have yet to change their business practices, so I expect to see audits of R&D credits en masse once enough agents are ready.

Most of the tax accountants I worked with early in my career have long since retired. The new generation of so-called “experts” didn’t get this business audit experience in their early careers and are utterly unprepared for what is on the horizon at the IRS. Because of this, there is a lot of incorrect information floating around in the tax world. Many advisors who have been playing the audit lottery for years successfully are in line to get both themselves and their clients burned in the coming audit storm.

When should taxpayers be afraid? Considering the two- to three-year timeline to get staffed and the three-year statute of limitations for auditing most tax returns, the tax years that will be most at risk for audit are 2021 and onwards. Per 2019 IRS statistics, individuals with taxable income between $25,000 and $500,000 only have a roughly 0.2% chance of being audited each year, with those reporting $0 income or a net loss for the year at 1.1%.

Audit Rates by Taxable Income Bracket in 2019. Source: Government Accountability Office

Back in 2010, mid-range incomes were only at a 0.7% risk. If $0 or less of income was reported, there was a 20.6% chance of an audit — meaning those playing it conservatively will likely still be OK. However, those taking aggressive positions were at far greater risk, likely running that 1-in-5 risk of audit.

Because of this, I recommend choosing your advisors carefully. Aggressive tax positions should be avoided right now unless the benefit outweighs the risk regarding the cost of litigation. The biggest fallacies I hear in consult calls every week tend to come from Reddit threads, and trust me, Reddit is not a credible source. Be sure to look up your advisors and make sure they are licensed and experienced, as this, at least, will give some grounds to have penalties waived if an aggressive tax position is questioned.

Crystal Stranger is a federally-licensed tax EA and the international tax director at GBS Tax. She worked previously as a software developer in San Francisco.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

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VanEck to donate 10% of profits from Ether ETF to core developers

The Protocol Guild, a team of over 150 Ethereum core developers, will be the beneficiary. VanEck argues that asset managers should give back some Ether…



The Protocol Guild, a team of over 150 Ethereum core developers, will be the beneficiary. VanEck argues that asset managers should give back some Ether ETF proceeds to the community.

Global asset manager VanEck will donate 10% of all profits from its upcoming Ether futures exchange-traded fund (ETF) to Ethereum core developers for 10 years, the company announced on X (formerly Twitter) on Sept. 29. 

The beneficiary will be the Protocol Guild, a group of over 150 developers maintaining Ethereum’s core technology. According to VanEck, it’s only fair for asset managers to return part of their proceeds to the community building the crypto protocol. It stated:

“If TradFi stands to gain from the efforts of Ethereum’s core contributors, it makes sense that we also give back to their work. We urge other asset managers/ETF issuers to consider also giving back in the same way.“

With this move, VanEck joins other crypto-native communities supporting the Ethereum network, including Lido Finance, Uniswap, Arbitrum, Optimism, ENS Domains, MolochDAO and Nouns DAO.

According to a public dashboard tracking donations sent to the Guild’s mainnet, 4,846 contributions have generated over $12 million in donations. Funds are then distributed among its members according to a weighted ratio based on their contribution periods.

The network core developers are reportedly working on Ethereum Improvement Proposal EIP-4844 (Proto-Danksharding). The upgrade will introduce a new kind of transaction type to Ethereum, promising to reduce transaction fees for layer-2 protocols.

VanEck disclosed its upcoming Ethereum Strategy ETF on Sept. 28, saying it will invest in Ether futures contracts. The fund will be actively managed by Greg Krenzer, head of active trading at VanEck, and is expected to be listed on the Chicago Board Options Exchange in the coming days.

Other traditional investment firms set to offer exposure to Ether futures include Valkyrie and Bitwise, while the line for a spot Ether ETF keeps growing with Invesco Galaxy, ARK 21Shares and VanEck waiting for regulatory approval. The United States Securities and Exchange Commission (SEC) recently delayed a decision on whether to approve a spot Ether product until December.

Magazine: Joe Lubin — The truth about ETH founders split and ‘Crypto Google’

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FTX exploiter moved over $17M in ETH in the last 24 hours

A significant portion of the 7,749 ETH, worth roughly $13 million, was directed toward the THORChain router and Railgun contract.



A significant portion of the 7,749 ETH, worth roughly $13 million, was directed toward the THORChain router and Railgun contract.

According to recent information from Spot On Chain, an address linked to the FTX exploit identified as 0x3e9, has conducted transfers exceeding 10,000 Ether (ETH), worth roughly $17 million, across five different addresses since Sept. 30. The addresses had remained inactive for several months before the recent activity.

Within these transactions, a significant portion of 7,749 ETH, equivalent to $13 million, was directed toward the Thorchain router and Railgun contract. Furthermore, the exploiter engaged in a swap involving 2,500 ETH, valued at $4.19 million, converting it into 153.4 tBTC at an average rate of $27,281 per token. This address, which has recently become active, has exhibited noteworthy activity and is anticipated to continue transferring ETH, most likely to Thorchain.

At the time of the initial hack on Saturday, Sept. 30, the approximate losses amounted to nearly 50,000 ETH. This incident occurred just a short while before SBF's criminal trial scheduled for Oct. 2023.

Nevertheless, these occurrences have generated a significant amount of downward pressure on the ETH price, which currently maintains a level slightly above $1,650. This situation arises as the market anticipates the introduction of Ethereum futures ETFs on Monday, Oct. 2.

FTX co-founder Sam Bankman-Fried, commonly known as SBF, is scheduled to go to trial in October. This comes after his arrest in The Bahamas and subsequent extradition to the United States, marking several months since these events occurred.

The trial is expected to last for six weeks, beginning with the selection of the jury on Oct. 3, followed by the initial court proceedings on Oct. 4. Bankman-Fried faces a total of seven charges connected to fraudulent activities, comprising two substantive charges and five conspiracy charges.

Related: Valkyrie backtracks on Ether futures contract purchases until ETF launch

During the legal proceedings, the FTX founder has consistently pleaded not guilty to all allegations. Despite numerous attempts to secure temporary release, Bankman-Fried continues to be held in custody at the Metropolitan Detention Center. His most recent request for release was denied by Judge Lewis Kaplan, citing concerns about the possibility of him fleeing.

Magazine: Can you trust crypto exchanges after the collapse of FTX?

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SEC initiates legal action against FTX’s auditor

The SEC alleges that Prager Metis, an accounting firm engaged by bankrupt crypto exchange FTX in 2021, committed hundreds of violations related to auditor…



The SEC alleges that Prager Metis, an accounting firm engaged by bankrupt crypto exchange FTX in 2021, committed hundreds of violations related to auditor independence.

The United States Securities and Exchange Commission (SEC) has commenced legal proceedings against an accounting firm that had provided services to cryptocurrency exchange FTX before its bankruptcy declaration.

According to a Sept. 29 statement, the SEC alleged that accounting firm Prager Metis provided auditing services to its clients without maintaining the necessary independence as it continued to offer accounting services. This practice is prohibited under the auditor independence framework.

Extract from the SEC's September 29 statement. Source: SEC

To prevent conflicts of interest, accounting and audit tasks must be kept clearly separate. However, the SEC claims that these entwined activities spanned over a period of approximately three years:

“As alleged in our complaint, over a period of nearly three years, Prager’s audits, reviews, and exams fell short of these fundamental principles. Our complaint is an important reminder that auditor independence is crucial to investor protection.”

While the statement doesn't explicitly mention FTX or any other clients, it does emphasize that there were allegedly "hundreds" of auditor independence violations throughout the three-year period.

Furthermore, a previous court filing pointed out that the FTX Group engaged Metis to audit FTX US and FTX at some point in 2021. Subsequently, FTX declared bankruptcy in November 2022. 

The filing alleged that since former FTX CEO Sam Bankman-Fried publicly announced previous FTX audit results, Metis should have recognized that its work would be used by FTX to bolster public trust.

Related: FTX founder’s plea for temporary release should be denied, prosecution says

Concerns were previously reported about the material presented in FTX audit reports.

On Jan. 25, current FTX CEO John J. Ray III told a bankruptcy court that he had “substantial concerns as to the information presented in these audited financial statements.”

Furthermore, Senators Elizabeth Warren and Ron Wyden raised concerns about Prager Metis' impartiality. They argued that it functioned as an advocate for the crypto industry.

Meanwhile, a law firm that provided services to FTX has come under scrutiny in recent times.

In a Sept. 21 court filing, plaintiffs allege that U.S. based law firm, Fenwick & West, should be held partially liable for FTX's collapse because it reportedly exceeded the norm when it came to its service offerings to the exchange.

However, Fenwick & West asserts that it cannot be held accountable for a client's misconduct as long as its actions remain within the bounds of the client's representation.

Magazine: Blockchain detectives: Mt. Gox collapse saw birth of Chainalysis

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