The IRS is gearing up to increase audits in order to crack down on tax cheats and boost revenue for the U.S. Treasury. However, not all groups of taxpayers will be under heightened scrutiny, as stated by IRS commissioner Danny Werfel.
With the enactment of the Inflation Reduction Act (IRA) in 2022 by President Joe Biden, the IRS has received an additional $80 billion in funding. This infusion of funds aims to revitalize an agency that has faced staffing shortages over the years, resulting in customer service issues, processing delays, and a decline in audit rates.
During a recent announcement, the IRS detailed its plans for utilizing the new funding and highlighted its efforts to enhance customer service operations following prolonged delays experienced by taxpayers during the pandemic. The IRA funding has enabled the IRS to handle more taxpayer calls during the recently concluded tax season on April 15. Additionally, it has strengthened enforcement measures, leading to the recovery of $520 million from affluent taxpayers who had either failed to file their taxes or had outstanding tax liabilities.
Werfel noted that the IRS' strategic plan over the next three tax years include a sharp increase in audits, although the agency reiterated it won't boost its enforcement for people who earn less than $400,000 annually — which covers the bulk of U.S. taxpayers.
Here's who will face an increase in audits
At the same time, the IRS is increasing its audit efforts, with Werfel noting on Thursday that the agency will focus on wealthy individuals and large corporations:
- The IRS plans to triple the audit rates on large corporations with assets of more than $250 million. Audit rates for these companies will rise to 22.6% in tax year 2026 from 8.8% in 2019.
- Large partnerships with assets of more than $10 million will see their audit rates increase 10-fold, rising to 1% in tax year 2026 from 0.1% in 2019.
- Wealthy individuals with total positive income of more than $10 million will see their audit rates rise 50% to 16.5% from 11% in 2019.
"There is no new wave of audits coming from middle- and low-income [individuals], coming from mom and pops. That's not in our plans," Werfel said.
But by targeting large corporations, intricate partnerships, and individuals earning over $10 million annually, the IRS aims to convey a message, as noted by the spokesperson.
"This emphasizes our focus on complex filers and high-wealth individuals," the spokesperson stated.
Dispelling the Myth of 87,000 Armed IRS Agents
The agency also highlighted its efforts to increase hiring, supported by the new IRA funding. In the mid-1990s, the IRS had a workforce of over 100,000 employees, but by 2019, it had decreased to around 73,000 due to retirements and budget cuts.
The spokesperson mentioned that the agency has now raised its workforce to approximately 90,000 full-time equivalent employees and plans to reach about 102,500 employees in the coming years.
"This figure does not surpass historical peaks for IRS employment, remaining below the levels seen in the 1980s and early 1990s," the spokesperson explained.
Addressing concerns raised in 2022, the spokesperson clarified that the notion of the IRS hiring 87,000 new agents to audit individuals was unfounded after the IRA was passed.
"This should dispel any misconceptions about a massive increase in IRS agents," the spokesperson affirmed, highlighting that most new hires are replacing retiring staff members.
