Many of you may be aware that the Biden administration passed the Inflation Reduction Act late in 2022.
Let us put aside the misleading title of the bill since throwing money at the IRS will have no effect on Inflation. But that is another conversation.
The Act provides the IRS with nearly $80 billion in funding through fiscal year 2031. The money is to be used to catch up with backlogs, hire more employees, implement new technology, go after increasingly sophisticated tax cheats and reinvent itself.
Pardon me for being skeptical. I have been dealing with IRS for 47 years and . . . let me think. Has the Post Office improved with added funding? The IRS is multiple times more complicated than the Post Office. I cannot say I have seen much improvement at the IRS since I started preparing taxes in 1976. Every new commissioner comes in with high hopes but very little changes.
The vision is to create world class customer service. Snicker, snicker. Ok. So they put more people on the phones. Tax law is complicated. Even for simple returns. Any representative working with taxpayers will need extensive training to understand even simple questions.
60 % of funding will go toward audits. The IRS was instructed to focus on individuals earning over $400,000 per year, partnerships and large corporations. Of course, the big money is in the middle class and they know it. (the Democrats unanimously defeated an amendment that would have excluded 400,000 small businesses) We will see how that turns out.
The audit rate has diminished in the last 2 decades. The audit rate for large corporations tumbled from 10.5% in 2011 TO 1.7% in 2019, according to numbers cited in the Strategic Operating Plan. So, too, for wealthy individual earning $1 million or more audits went from 7.2% in 2011 to .7% in 2019.
The face to face audit rate has diminished but not taken into account by statistics is the massive jump in correspondence audits which occurred simultaneously. Correspondence audits are when the taxpayer simply receives a notice or letter demanding money. The IRS matches tax returns with 1099’s and other information issued by third parties to catch any unreported income. IRS computers have also grown much more sophisticated in catching any tax returns with errors or red flag items. These audits are frequently incorrect but the burden is on the taxpayer to correct the problem. Fixing IRS problems can take months if not years.
In addition, new and existing paperwork filing requirements such as the ACA, foreign income reporting, tip reporting, digital currency transactions, advance withholding, 1099 filing, tax preparer penalties and more gives the IRS ample opportunities to go after taxpayers with increased manpower.
Web access, digital filing and new application programs theoretically could streamline IRS processes but that will depend on proper implementation and training.
Only time will tell if the IRS can pull it off.
