The Internal Revenue Service (IRS) plans to significantly increase audit rates for wealthy taxpayers and large corporations following the passage of the Inflation Reduction Act in 2022. Audit rates for taxpayers earning over $10 million are expected to rise by 50% to 16.5% by 2026, while large corporations with assets over $250 million and business partnerships with assets over $10 million will also see increased audit rates. Despite the expected increases, the IRS aims to match the audit rates achieved in 2010 due to the growing complexity and number of filings by large corporations, partnerships, and wealthy individuals.
To achieve a substantial increase in audits, the IRS is hiring new staff, including accountants, engineers, data scientists, attorneys, and tax experts. Over the years, IRS staffing in compliance offices had fallen by 30% due to underfunding, but since 2022, the agency has added around 11,000 full-time positions with plans to add an additional 14,000 by fiscal year 2029. The IRS is also investing in technology, using artificial intelligence to select businesses for audit. These efforts have already seen $520 million in tax revenue recovered from millionaires who have failed to file or pay their taxes.
The funding provided by the Inflation Reduction Act is also being used to modernize taxpayer services at the IRS. This includes increasing the number of calls answered, in-person assistance at Taxpayer Assistance Centers, digitizing paperwork, and enhancing the online “Where’s My Refund” tool for taxpayers to track their returns. The agency has even launched a pilot tax filing service, known as Direct File, allowing over 140,000 people to file their taxes for free directly with the IRS.
The Inflation Reduction Act allocated approximately $80 billion to the IRS over a 10-year period, but Republicans have attempted to reverse some of the funding. In a deal to address the debt ceiling last June, $20 billion of the allocated funds were rescinded, and in January, Democrats agreed to an accelerated $20 billion cut to pass a full-year federal spending law. IRS Commissioner Danny Werfel has warned against further cuts, stating that failure to maintain funding levels could result in a significant decline in phone service, leaving many taxpayers unanswered.
Werfel assured the public that audits for households earning less than $400,000 will not increase beyond 2018 levels, the agency’s commitment. Despite concerns from Republicans about potential audits on small businesses and the middle class, Werfel reiterated that the focus remains on audits for the wealthy and large corporations to ensure tax compliance. As the IRS continues to modernize and increase staffing levels, the goal is to collect more tax revenue from those who have not been paying their fair share while providing improved services for all taxpayers.
