Does the Inflation Reduction Act Influence Audit Likelihood?
TL/DR –
The Inflation Reduction Act, if passed, would provide the IRS with nearly $80 billion, $45.6 billion of which would be allocated for “tax enforcement activities”. A $80 billion investment in the IRS over a decade could pave the way for the hiring of approximately 87,000 new employees by 2031 according to a May 2021 report by the Treasury Department. Critics, however, worry that increased enforcement measures could lead to a significant increase in audits for low- and middle-income filers, despite IRS Commissioner Charles Rettig assuring that the resources are not intended to increase audit scrutiny on small businesses or middle-income Americans.
Uncertainties Surround Inflation Reduction Act Regarding IRS Tax Enforcement
With the Inflation Reduction Act potentially passing through the House and awaiting President Biden’s signature, questions remain about the Act’s vaguely termed “IRS Tax Enforcement” provision.
100 Most Influential Money Experts: Find 7 Easy Ways To Reach Retirement Goals
The Act would provide the IRS with nearly $80 billion, $45.6 billion of which would be allocated to tax enforcement activities. The impact of these activities on American taxpayers is unknown.
A May 2021 Treasury Department report suggested an $80 billion investment in the IRS over a decade would enable the hiring of about 87,000 new employees, from support staff to IT technicians and corporate auditors.
However, critics argue this could lead to a significant increase in audits for low- and middle-income filers who disproportionately face them. This disparity in auditing was highlighted by Ways and Means Committee member Rep. Bill Pascrell (D-N.J.).
Addressing the issue, IRS Commissioner Charles Rettig reassured Senate members that the resources would not be about increasing audit scrutiny on small businesses or middle-income Americans. He stated that audit rates for households making under $400,000 would not rise relative to recent years.
The IRS targets high-earning Americans and businesses. However, self-employed workers and cash businesses might see higher audit rates due to the ease of overclaiming deductions or underreporting income.
Listen to the Live Richer Podcast: First-Time Homebuying During Inflation and explore 10 Biggest Deals at Walmart for August.
From 2015 to 2019, IRS audits dropped by 44%, which includes a 75% decrease for those making $1 million or more and a 33% drop for low-to-moderate income taxpayers claiming the Earned Income Tax Credit.
—
Read More US Economic News