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 audit rates on large corporations with assets over $250 million. The rate will rise to 22.6% in tax year 2026, up from 8.8% in 2019. Large partnerships with assets exceeding $10 million will also face sharper scrutiny. Their audit rate will jump tenfold, reaching 1% in 2026 compared to just 0.1% in 2019. Wealthy individuals with total income above $10 million will also see higher enforcement. Their audit rate will increase by 50%, climbing to 16.5% in 2026 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 boost hiring with the help of new IRA funding. In the mid-1990s, the agency employed over 100,000 people. By 2019, the number had dropped to about 73,000 due to retirements and funding cuts. Recently, the IRS increased its workforce to nearly 90,000 full-time employees. It also plans to expand further, reaching about 102,500 workers in the coming years. Werfel clarified that many of these hires are replacing retiring staff. He also noted that the data should remove misconceptions about a greatly expanded IRS workforce.
In conclusion, the IRS’s planned increase in audits shows its effort to enforce tax compliance among wealthy individuals and large corporations. These audits are expected to rise significantly in the coming years. However, the agency assures middle- and low-income taxpayers that they will not face extra enforcement. The focus remains on tackling tax evasion in high-wealth sectors. This approach highlights the IRS’s commitment to fairness and accountability in tax administration.
