More Money, More IRS Audits?

President Biden signed the Inflation Reduction Act, H.R. 5376 (the “Act”) into law on Tuesday. A sweeping $750 billion health care, tax and climate bill, the Act includes almost $80 billion in funding for the Internal Revenue Service (“IRS”) over the next decade. While, yes, over $45.6 billion will be allocated to tax enforcement activities, the IRS will also be receiving funds for:

• Taxpayer Services ($3,181,500,000) – to provide pre-filing assistance and education, filing and account services, taxpayer advocacy services, and other services;
• Operations Support ($25,326,400,000) – to support taxpayer services and enforcement programs, including but not limited to rent payments, facilities services, printing, postage, research and statistics of income, information technology development, and operations of Internal Revenue Service Oversight Board; and,
• Business Systems Modernization ($4,750,700,000) – to develop callback technology and other technology to provide more personalized customer service and improve operation and maintenance of legacy systems.

Improved taxpayer service and technology will certainly be appreciated by many, but who will bear the brunt of the IRS’ newly strengthened enforcement and compliance efforts?

U.S. Secretary of the Treasury Janet L. Yellen recently sent a letter to the Commissioner of the Internal Revenue Service, Charles P. Rettig in support of the much-needed funding, therein also reaffirming the Administration’s commitment to not increase audit rates on Americans making under $400,000 a year. JLY-letter-to-Commissioner-Rettig-Signed.pdf (treasury.gov). Yellen has also since directed the Internal Revenue Service to send her a plan within six months for how it specifically plans to spend the funds, including metrics for focus areas and goals the agency will strive to reach.

It is anticipated that the focus of the IRS’ tax enforcement activities will be on large corporations and high-net-worth individuals (and the entities they control). The $45.6 billion boost in funds for enforcement will be used to determine and collect owed taxes, provide legal and litigation support, conduct criminal investigations, and improve digital asset monitoring and compliance activities. With as many as 87,000 new IRS agents soon to be hired, taxpayers should review their records and tax positions carefully to identify potential areas of noncompliance.

For additional insights, visit the Tax Foundation:

IRS Funding: Inflation Reduction Act IRS Tax Enforcement Provisions (taxfoundation.org)