The IRS plans to focus on reversing the current trend of deceasing IRS audits that have occurred over the last ten years. The recently passed Inflation Reduction Act provides $79.6 Billion to the IRS to improve its operations and efficiency. The funding is to be spread over the next ten years.
$45.6 Billion (57.3%) of the total funding is to be appropriated to tax enforcement activities that include an increase in hiring and training of enforcement agents as well updating the IRS’s “Investigative IT”. With the increased funding, the IRS plans to step up the number of tax examination audits annually – with the focus being big corporations, pass-through entities (S-corporations and partnership tax returns), and high net worth individuals (taxpayers earning $400K or more annually). Additionally, we assume the IRS will continue to focus a portion of their audits on self-employed (Schedule C) individuals as well.
Only $3.2 Billion (4.0%) will be allocated to improving taxpayer services and customer support. This is an area where the IRS has “dropped the ball” over the past 3 years since the beginning of the pandemic and has yet to fully recover to pre-pandemic efficiency.
But please don’t panic over the IRS’s plans of increasing their tax audits. Currently, the projected total number of IRS employees to be hired is expected to be more than 80,000 new employees. However, hiring that number of qualified candidates will not happen overnight, but more realistically will take place over several years. Plus, once hired, there will be significant time involved in training these newly hired employees while getting them “up to speed”. One other key factor, the IRS anticipates 50,000 staff will be retiring over the next 6 years. Piecing these components together, don’t look for any significant increase in IRS tax audits in the near future.