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The IRS is increasing audit activity

Most people dread having to deal with the Internal Revenue Service (IRS), but a recent announcement by the agency implies that more people will soon have to do just that. Additional funding by the Inflation Reduction Act (IRA) enables the IRS to increase audits to thwart tax evasion.

The IRS recently updated its Strategic Operating Plan to highlight key projects using IRA funding over the next 12 to 18 months. The plan will use $80 billion in funding to close the tax gap by targeting wealthy tax evaders.

Targeting the wealthiest taxpayers

Years of underfunding have previously hindered the IRS’s ability to enforce tax laws effectively, but the new funding is set to change that. The IRS estimates the current tax gap, the difference between taxes owed and taxes collected, to be $683 billion. Approximately $77 billion of this gap is attributed to non-filers evading taxes.

The IRS’ renewed efforts will focus on high-income taxpayers who have failed to file federal income tax returns. Since 2017, this group has been non-filing over 125,000 times.

  • Wealthy individuals: Audit rates for individuals with incomes over $10 million will rise from 11% in 2019 to 16.5% in tax year 2026.
  • Large corporations: Audit rates for corporations with assets over $250 million will nearly triple to 22.6% in the tax year 2026, up from 8.8% in the tax year 2019.
  • Complex partnerships: Audit rates for partnerships with assets over $10 million will increase tenfold from 0.1% in 2019 to 1% in tax year 2026.

The agency plans to increase audit rates significantly for these individuals, as well as for large corporations and complex partnerships. Audit rates for small businesses and taxpayers earning less than $400,000 are not expected to increase and would remain at historically low levels.

Advanced technologies are being implemented

The IRS is using artificial intelligence and advanced analytics to select complex partnerships for audits. This is new territory for tax filers, so it’s best to work with a Georgia tax law attorney who can assist with handling audits and similar tax issues if you receive notice that you’re being audited.