Beware of $80 billion funding for IRS
The Senate approved almost $80 billion of funding for the IRS. “Enforcement” is designated for over $45 billion of the funding.
IRS audits will substantially increase with the hiring of 87,000 new agents.
The Act is expected to pass in the House and then go to President Biden’s desk for his signature.
In a letter to the Senate last week, IRS Commissioner Charles Rettig said that resources from the Inflation Reduction Act “are absolutely not about increasing audit scrutiny on small businesses or middle-income Americans.” Instead, it will bring the IRS “back to historical norms in areas of challenge for the agency,”
Funds received will also go toward “employees and IT systems that will allow us to better serve all taxpayers,” Rettig wrote.
According to the Congressional Budget Office, the investment in IRS funding is projected to bring in $203.7 billion in revenue from 2022 to 2031. However, opponents say IRS enforcement may affect everyone.
“Our biggest worry in this is that the burden for these audits will land on Walmart shoppers,” said Rep. Kevin Brady.
According to the Wall Street Journal, “The Joint Committee on Taxation, Congress’s official tax scorekeeper, says that from 78% to 90% of the money raised from under-reported income would likely come from those making less than $200,000 a year”.
Audits won’t increase immediately increase after the bill is passed. New auditors receive about six months of training.
As a result of the funding, many people are becoming more concerned about having an increased risk of being audited. If your tax return is a basic W2 return, there is very little risk of an audit.
If your tax return includes a business, many factors could trigger an audit.
Your odds of being audited can be drastically reduced by being careful when filing your tax return. The IRS has software that scores every tax return with a numeric score. The higher the score, the more likely your return will be audited. An experienced tax preparer should be able to tell you if they see something that increases your risk of being audited. However, a tax preparer with little experience is not as likely to know what may cause your return to be audited.
If you have multiple years of unfiled returns or have received threatening letters about your tax liability, it’s important to take immediate action to resolve any issues that you may have.
Keeping accurate records and using an experienced tax professional can help prevent you from being audited.
David Zubler is a tax accountant and Enrolled Agent in East Tennessee, providing tax strategies and representing clients before the IRS and has over 25 years of tax experience. He is the author of six tax books and has shared tax advice on national TV. He is the founder and president of Your Tax Care. The company provides business and tax education, including David’s one-minute tax tip radio recordings at YourTaxCare.com. David can be reached at (865) 363-3019 or contacted by email at email@example.com.