A major shakeup is in store for the IRS as its ability to administer IRS audits increases. The agency received a significant funding boost as part of the recent Inflation Reduction Act. While exact plans remain unknown, there’s no doubt that change is afoot.
Following years of staffing struggles, reports suggest that the IRS will hire tens of thousands of new agents. Meanwhile, $45 billion has been earmarked for enforcement. As such, many people assume that audits will become more common in the near future.
Is this a valid concern? Keep reading to find out.
Return to the Status Quo
While audit rates have already jumped and are expected to increase further, they may still remain far lower than they were a few decades ago. Many of us have forgotten: after 2010, audit rates decreased considerably for taxpayers from all income levels. As such, the current effort to increase audit activity may represent a return to pre-2010 levels. It’s possible that we got a bit too comfortable with this lower audit risk and are now ill-prepared for a return to what we once deemed normal.
Audit Rates Will Rise Fastest For High-Income Taxpayers
The current trend is for audit rates to increase swiftly as taxpayers earn more. This is expected to continue. A recent IRS statement suggests that a major jump has already occurred for those earning over an annual $10 million. The new audit rate for this income bracket is now over eight percent.
Interestingly, high-income taxpayers also saw the sharpest declines in audit rates prior to 2022. According to the Treasury Inspector General for Tax Administration, audit rates dropped by 75 percent between 2015 and 2019 for taxpayers earning over $1 million per year. Looking at these relatively recent declines, it again seems possible that the increased scrutiny of high-income earners may once again represent a return to the former status quo.
With IRS audit rates on the rise, it’s never too early to be prepared. In the event of an audit, you’ll want strong support from an enrolled agent. Look to the Highland Tax Group for assertive representation.