TL/DR –
The Internal Revenue Service (IRS) plans to increase audit rates for large corporations, partnerships, and multimillionaires over the next three years to enhance collections. The IRS targets a triple increase in audit rates for corporations with assets over $250 million and a nearly 10-fold increase for partnerships with assets over $10 million by 2026. The agency also emphasized it would not raise audit rates on individuals and small businesses earning less than $400,000, in line with President Joe Biden’s pledge not to increase taxes on the said demographic.
IRS Boosting Audit Rates for Large Corporations, Multimillionaires Over Next Three Years
The Internal Revenue Service (IRS) has announced its plans to drastically raise audit rates for big corporations, multimillionaires, and partnerships in the next three years. This comes as the IRS intensifies enforcement spending and recruitment to enhance collections.
The IRS is allocating $60 billion in funding from the 2022 Inflation Reduction Act, as part of its updated strategic operating plan. The agency intends to nearly triple the audit rate on corporations with assets exceeding $250 million to 22.6% in the 2026 tax year, a significant rise from 8.8% in 2019. Audit rates for complex partnerships with assets above $10 million are also set to increase by nearly 10-fold to 1% by 2026 from 0.1% in 2019. Additionally, the IRS is aiming for a 50% increase in audit rates for individuals with total positive annual income over $10 million.
However, the IRS has reassured that audit rates will not increase for individuals and small businesses earning under $400,000, in alignment with President Joe Biden\’s commitment to not raise taxes on this demographic. The agency has planned to expend $7.25 billion of the Inflation Reduction Act funds in fiscal 2024, a steep increase from $3.4 billion in fiscal 2023.
Spending plans for the coming years include $9.3 billion in fiscal 2025, $7.3 billion in fiscal 2026, and a total of $57.82 billion through fiscal 2031. IRS Commissioner Danny Werfel stated that these changes represent a significant change from the years of under-investment that led to deteriorated taxpayer service and tax enforcement.
The Inflation Reduction Act funding was originally approved at $80 billion over a decade to modernize the IRS\’s outdated computer systems, improve taxpayer services and increase enforcement to close the ‘tax gap’. However, this funding amount has faced opposition, with Republicans criticizing the IRS spending and successfully reducing the funding by $20 billion this year.
The IRS reports having hired 13,661 individuals in fiscal 2023, including 10,518 taxpayer services staff and 495 enforcement staff, using the Inflation Reduction Act funds. The agency plans to further increase these hires to 16,314 in fiscal 2024, including 4,088 enforcement staff. The move aims to support an IRS workforce of around 93,000 by 2028, up from an estimated 88,411 for fiscal 2024.
—
Read More US Economic News