The Internal Revenue Service (IRS) is gearing up for a significant increase in audits, aiming to crack down on tax cheats and boost revenue for the U.S. Treasury. This move comes as the IRS has received a much-needed financial boost of $80 billion from the Inflation Reduction Act (IRA) signed into law in 2022 by President Joe Biden. The funding aims to revitalize an agency that has faced depleted ranks over the years, leading to customer service challenges, processing delays and decreased audit rates.
IRS Commissioner Danny Werfel outlined the agency’s plans, emphasizing that only some groups of taxpayers will face increased scrutiny. The IRS’s strategic plan for the next three tax years includes a sharp increase in audits, mainly targeting wealthy individuals and large corporations. However, the agency reiterated that it will not boost enforcement for people earning less than $400,000 annually, which covers the majority of U.S. taxpayers.
Specifically, the IRS plans to triple the audit rates on large corporations with assets exceeding $250 million, raising the audit rates to 22.6% in tax year 2026 from 8.8% in 2019. Large partnerships with assets over $10 million will see their audit rates increase tenfold, rising to 1% in tax year 2026 from 0.1% in 2019. Wealthy individuals with total positive income exceeding $10 million will see their audit rates increase by 50% to 16.5% from 11% in 2019.
Commissioner Werfel emphasized that there is no new wave of audits targeting middle- and low-income individuals or small businesses. The focus is on big corporations, complex partnerships, and high-wealth individuals earning over $10 million annually. Werfel stated that this focus sends an essential message to complex filers and high-wealth individuals, indicating that the IRS prioritizes enforcement in these areas.
Additionally, the IRS outlined its efforts to bolster hiring, thanks to the new IRA funding. While the agency employed over 100,000 people in the mid-1990s, its workforce had dwindled to about 73,000 in 2019 due to retirements and funding cuts. The IRS has recently increased its workforce to about 90,000 full-time equivalent employees, with plans to expand to 102,500 workers in the coming years. Werfel clarified that many new hires are replacing retiring employees and that the hiring data should dispel any misconceptions about a significantly expanded IRS workforce.
In conclusion, the IRS’s planned increase in audits reflects its efforts to ensure tax compliance among wealthy individuals and large corporations. While these audits are expected to rise significantly, the agency is reassuring middle- and low-income taxpayers that they will not face heightened enforcement. The focus remains on addressing tax evasion in high-wealth sectors, signaling the IRS’s commitment to fairness and accountability in tax administration.
