The Internal Revenue Service (IRS) is stepping up its taxpayer audits, thanks to an $880 million infusion from the Inflation Reduction Act (IRA), which became law in August 2022. However, not all taxpayers will be equally affected.
By 2026, with the audit changes fully implemented, the IRS expects to have increased the audit rate from 2019 by at least 50% for individuals with incomes of $10 million or more. Additionally, audit rates for corporations with over $250 million in assets will nearly triple, while those for complex partnerships with assets exceeding $10 million will increase tenfold.
Meanwhile, “the agency will not be raising audit rates for small businesses and taxpayers earning less than $400,000, and those rates remain historically low,” the IRS stated in a press release.
Why Are More People Being Audited by the IRS?
The uptick in audits is part of the agency’s crackdown on wealthy individuals and businesses shielding or distorting their income to evade taxes.
“The IRS is now taking swift and aggressive action to improve tax compliance in areas where the agency lacked adequate resources prior to IRA funding,” the agency said in its 2024 Strategic Operations Plan update.
The agency mentioned using IRA funds to investigate how race, ethnicity, age, gender, and geography impact a taxpayer’s likelihood of being audited. A 2023 study by Treasury Department researchers and academics found that Black taxpayers were three to five times more likely to be audited than others.
IRS Enhances Services for Taxpayers
The IRS is also using IRA funds to upgrade technology and services for taxpayers, enhance its workforce, and “develop a culture that is better equipped to deliver results for taxpayers,” the agency said.
During the recently concluded 2024 filing season, IRS personnel navigated through an additional 1 million calls compared to the previous year, all while sustaining an average wait time of merely three minutes. Furthermore, the agency highlighted that over 140,000 taxpayers embraced the newly introduced Direct File program, choosing to file their returns online free of charge.
“We need to continue working to make more improvements in taxpayer service, modernize technology and ensure those with complex returns, including certain high-income individuals, large corporations and complex partnerships, pay the taxes they owe,” IRS Commissioner Danny Werfel said in a statement.
Do I Have to Worry About an Audit from IRS?
Concerns about facing an IRS audit may seem daunting, but for many taxpayers, the odds remain relatively low, particularly if your household income falls below $400,000 annually. A study by Syracuse University analyzed 164 million individual tax returns filed in 2022 and found that only about 626,000 were subjected to audits, translating to a 0.38% audit rate.
If you used top-tier tax software to prepare your return, your agreement with the company might offer audit protection or assistance. Additionally, tax professionals are often available to address audit-related inquiries and guide you through the process.
