Personal Financetax audits
May 10, 2024 12:26 AM EDT
The IRS claims that in an effort to bring in more money for the United States and to crack down on tax evasion, it is going to step up audits into the US Treasury's funds. However, IRS commissioner Danny Werfel says that not all taxpayer groups would be subject to increased scrutiny.
President Joe Biden signed the Inflation Reduction Act (IRA) into law in 2022, providing the IRS with an additional $80 billion in cash. The intention behind the additional cash was to assist in revitalizing an organization whose staff had been gradually reduced over time, resulting in bottlenecks in customer service, delays in processing, and a decline in audit rates.
The IRS released its intentions for the funds on Thursday along with an update on its current attempts to improve customer service at the agency following months-long delays experienced by some taxpayers during the epidemic. The IRS reported that the IRA funds enabled it to recover $520 million from rich taxpayers who had not filed their taxes or still owing money, as well as to handle more taxpayer calls during the just concluded tax season.
Werfel pointed out that the IRS has a significant increase in audits in its strategic plan for the next three tax years, but the agency has reaffirmed that it would not step up enforcement for those making less than $400,000 annually, which is the majority of American taxpayers.
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At the same time, Werfel said on Thursday that the IRS will be stepping up its audit activities, concentrating on high net worth people and major corporations.
The IRS intends to significantly increase audit rates for large corporations, large partnerships, and wealthy individuals in the coming years. For corporations with assets exceeding $250 million, audit rates will triple, soaring from 8.8% in 2019 to 22.6% in tax year 2026.
Similarly, large partnerships with assets surpassing $10 million will witness a tenfold rise in audit rates, escalating to 1% in 2026 from 0.1% in 2019. Wealthy individuals with total positive income exceeding $10 million will experience a 50% increase in audit rates, climbing to 16.5% from 11% in 2019.
Werfel clarified that there are no plans for a surge in audits targeting middle- and low-income individuals or small businesses. Instead, the focus will be on large corporations, complex partnerships, and high-net-worth individuals, signaling a strategic shift by the IRS to prioritize these sectors. Werfel emphasized that this shift aims to convey a message to complex and high-wealth filers regarding the IRS's heightened scrutiny and focus on their tax compliance.
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