The Internal Revenue Service is planning to increase audit rates for wealthy taxpayers and large corporations with funds provided by the Inflation Reduction Act passed in 2022. The audit rate for taxpayers earning over $10 million is expected to rise by 50%, while audit rates for large corporations and business partnerships with assets over $250 million and $10 million, respectively, will also see significant increases over a seven-year period. Despite these changes, audit rates will not surpass those seen in 2010 due to the growth and complexity of filings.
To ramp up audits, the IRS is hiring additional staff, including accountants, engineers, economists, data scientists, attorneys, and tax experts. The agency has added 11,000 full-time positions since 2022 and plans to add an additional 14,000 positions by fiscal year 2029. The IRS is also investing in technology improvements, such as artificial intelligence, to help select businesses for audit. These efforts have already resulted in the recovery of $520 million from millionaires with tax compliance issues.
The IRS is also using funds from the Inflation Reduction Act to modernize taxpayer services. The agency has been able to answer more calls and serve more people in person at Taxpayer Assistance Centers across the country. Efforts to digitize paperwork and improve online tools, like “Where’s My Refund,” have also been undertaken. The launch of a pilot tax filing service called Direct File allowed over 140,000 people to file their tax returns directly with the IRS.
The Inflation Reduction Act provided about $80 billion in funding to the IRS over a 10-year period, but the funding has faced challenges from Republicans seeking to claw back some of the money. Democrats have made concessions on the funding in various deals, including a $20 billion cut in January to avoid a partial government shutdown. IRS Commissioner Danny Werfel warned about the potential consequences of further cuts, stating that the agency could run out of funds for modernizing its systems by fiscal year 2026, leading to a drop in phone service levels.
Werfel has reiterated the IRS’s commitment to shielding households earning less than $400,000 a year from increased audit rates, emphasizing that there are no plans to target middle- and low-income taxpayers or small businesses. The agency’s efforts to increase audits and improve services have been aimed at collecting more tax revenue from those who have not paid their fair share. Despite concerns from some Republicans, the IRS is focused on using the additional funding to modernize and enhance its capabilities to benefit all taxpayers.
