For years, the IRS has been known for one thing: when taxpayers fall behind, freeze bank accounts. But times have changed. With the expansion of authority, digital tracking and new reporting laws, the IRS is no longer limited to your checking account. Now it can take advantage of a wider range of financial assets, which many people don’t realize is this far distance.
Understanding this transformation is not about fear, but about preparation. The reality is that the IRS has adapted to the development of money in the modern world. With digital wallets, app-based revenue and side barriers rising, the agency simply closed the gap. But what does this mean for everyday taxpayers?
More than just your bank account
In the past, if someone owed taxes or was investigating, the IRS would focus on traditional bank accounts. Now, the agency has wider access and more tools. This includes the ability to monitor digital payments through platforms such as PayPal, Venmo and Cash applications, especially when these platforms are used for business or self-employed transactions.
Cryptocurrency holding is also on the IRS radar. The agency has added law enforcement and issued subpoenas to crypto exchanges to identify users whose earnings are not reported. They also published guidelines to better illustrate how cryptocurrency transactions are taxable (here). Even economic income earned from platforms like Uber, Etsy or Doordash can be tracked more carefully through the new 1099-K reporting requirements.
Third Party Payment App and 1099-K Changes
One of the biggest changes recently is third-party payment processors. Starting from the 2023 tax year, these applications must send Form 1099-K in total transactions over $600, regardless of the amount included. Although this has been postponed, the IRS has made it clear that it is preparing to do this more widely.
This doesn’t mean taxes or personal payments, but it does mean that many casual sellers or associate fraudsters can suddenly find themselves stuck on the agency’s radar, especially when they’ve been relying on informal platforms to keep their income under it.
Seize refunds and offset benefits
If someone owes taxes, the IRS has long been entitled to a salary or a rebate. But now, in some cases, it can also offset certain federal benefits, such as Social Security payments. Despite the safeguards of low-income individuals, those with outstanding debt and untaxed are at greater risk, making these benefits completely lower or intercepted.
This means retirees and fixed income families should be particularly aware of their tax status, even if they have lower annual incomes, because previous debts won’t disappear just because they stop working.
Real estate and property lien
Another tool that the IRS can use involves property lien. If someone owes a large amount of tax deductions, the agency can submit a lien to his home or property. While this does not mean an immediate seizure, it does produce a public record that can affect the ability to credit, refinancing, or even sell or transfer ownership.
This can be an unexpected obstacle to financial planning for those who own a leased property or inherit real estate. Keeping taxes or creating payment plans is crucial to protecting assets from getting entangled in IRS claims.
Why is this transformation important now
Governments are under increasing pressure to close the tax gap – the difference between debts arrears and what they collect. Much of this gap comes from underreported income, especially among self-employed workers, freelancers and small business owners. By expanding its coverage beyond traditional banks, the IRS’ goal is to increase compliance, but it also means that it may be included in audit or enforcement measures without realizing that it is at risk.
Technology makes it easier for the IRS. The algorithm can detect the difference in reporting income and expenditure habits. Data sharing agreements with financial institutions are also being strengthened. As a result, even minor errors or negligence can trigger notifications and fines.
Don’t panic, the IRS has given a lot of written notices
The IRS will usually issue a large number of written notices before the seizure or taxation action is carried out. So, if you are worried that the IRS will clean up your account due to insufficient taxes, rest assured. You get a lot of notifications before they do anything.
In addition, there are many examples where taxpayers can successfully resolve issues with payment plans or appeals. The IRS is often very willing to work with taxpayers, so you have the option.
What can taxpayers do?
There are some things taxpayers can do.
First, Improve record preservation:
- Download your digital transaction log regularly: An app like Venmo or PayPal will let you download CSV files for all transactions quarterly. Classify personal and business use immediately (for example, mark your personal expenses separately from free expenses) so that you can submit your taxes accurately.
- Improve your cryptocurrency accounting: Use dedicated software such as Cointracker or Koinly to record all transactions, wallet transfers and put rewards. Includes screenshots of cost-based calculations (e.g., first of all, the first method) and exchange statements. The IRS needs a detailed report based on Notice 2014-21, so you need to record this information regularly.
- Gift economy documents: For platforms like Uber or Etsy, not only can you save 1099 forms, but you can also track your mileage (apps like Mileiq can help), receipts and invoices for all supplies. Put all of this in a dedicated folder or spreadsheet, or self-employed with an app like QuickBooks to coordinate additional documents with your 1099-K. You will need all of these documents so that you can submit your taxes correctly.
second, Submit taxes correctly and promptly. No matter how small, avoid reporting any income. If you pay later, seek professional advice to browse new rules and avoid review. If you owe it, consider developing an installment plan with the IRS. It’s usually less painful than ignoring debt.
Reader: As the IRS grows stronger and digital funding becomes the norm, what do you think of the agent’s expanding influence? Protection policies or too much power?
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