More Audits Coming from the IRS?
Published on by Mark Hamad, Mary Benintendi, in Tax Services
The Internal Revenue Service (IRS) has announced its intention to increase audits for certain demographics of taxpayers. This move follows the passing of the Inflation Reduction Act (IRA), signed into law in 2022, which provided the IRS with an additional $80 billion in funding. The increased audits aim to enhance tax enforcement, particularly among wealthy Americans, thereby boosting tax revenue.
The IRS has stated that the primary focus of these increased audits will be on large corporations, complex partnerships, and high-wealth individuals, each of which will experience a significant rise in audit rates.
Who’s going under the audit microscope?
Large corporations
The IRS has made plans to triple audits on large corporations with assets of $250 million or more. These audit rates are set to rise from 8.8% in 2019 to 22.6% by 2026 – an increase of 157%.
Large partnerships
Partnerships with more than $10 Million in assets will see audit rates increase from a meager 0.1% to 1.0%. That seems like a small number, but note that it represents a 900% increase.
High wealth individuals
Individuals with a total income of more than $10 million will also see an increase in their audit rate – from 11% to 16.5% (note that’s a 50% increase).
And who’s not?
IRS Commissioner Danny Werfel has emphasized that this increased scrutiny will not affect those earning less than $400,000 annually, which is the majority of U.S. taxpayers. The amplified audit efforts are part of the IRS’s larger strategy to revitalize the agency, which has faced staffing shortages and service issues in recent years.
The additional funding from the Inflation Reduction Act is being used to bolster IRS staffing and improve customer service, especially after the service delays experienced during the pandemic.
Enhancing tax enforcement and ensuring tax compliance
The IRS’s decision to increase audits is a significant development for larger corporations, complex partnerships, and high-wealth individuals. It underlines the IRS’s commitment to enhancing tax enforcement and ensuring tax compliance among these groups. With this news, these entities and individuals are advised to prepare accordingly and ensure their tax affairs are in order, to minimize the risk of audit complications.
Let’s Talk
The majority of US taxpayers will likely not be affected by this change. However, for many individuals, partnerships, and large corporations, changes are on the way. As always, our team of tax pros is here to help you navigate these changes and prepare for audits. Contact us for a free consultation – as always, we’re here to help.
