Under the Inflation Reduction Act of 2022 which should be signed into law later this week, the Internal Revenue Service will receive an additional $79.6B in funding over the next 10 years to add agents and other staff. Sponsors of the bill have stated that $46B of the bill is slated to increase audits on taxpayers earning above $400K annually.
A large portion of the amount will go towards the additional employees necessary to process the IRS backlog of returns. Current estimates of that backlog estimate it at over 20M.
Under normal circumstances, that number is around 2.5M.
Many of the new employees will go into data processing divisions. In recent years, the Service has largely relied on machines to do most of its work.
It’s certainly true that half of the current IRS workforce will be eligible for retirement in the next five years. In addition, their current employment level of 78,000 is substantially less than the 100,000 employees they had back in 2013. Those retirees will need to be replaced.
But an additional $46B specifically earmarked for audits on upper end corporations and taxpayers is simply frightening.
Let me leave you with this.
The reason is that what they’re trying to do is impossible.
Consider the fact that auditing a large corporation or a wealthy individual takes a specific knowledge base and skills. This skill set takes time to acquire.
The Service could go out on the open market and buy those skills, but they don’t pay very much. As such those people aren’t going to leave firms like mine to go work for the Service.
The new auditing recruits will need to be hired, acclimated, and trained, which will take time.
And how will those employees be trained? It certainly won’t be by letting them loose on upper income earners. They’ll need to start on lower income returns to begin learning the tax laws and the auditing process.
Once this is mastered, they’ll move up to middle income returns. Those returns have home mortgage deductions, interest, and dividends which is a whole new set of tax laws and rules.
Once mastered, they’ll go on to audit the returns of individuals earning more than $400K as promised. The problem is that it will probably take at least five years for the more gifted agents to earn their stripes and get to the larger returns.
For most IRS employees, it will take much longer, if they get there at all.
The concept of the New Administration appropriating $46B to focus on upper income audits is by definition ludicrous. There’s just no way that it could possibly be done given what they pay.
This means that no matter how much money you put on a return, there will be a substantial increase in audit activity. Be smart enough to not believe the headlines. They’re coming for you.
How can you make sure to not have problems in this regard? Hire an accountant who knows the tax laws and completes auditable returns. If everything is done correctly, they’ll have no reason to knock on your door.
I haven’t had one of my returns audited at the Federal Level in the last 12 years. Why? Because there’s no reason for them to come in the first place. And back in 2010 when they did, they didn’t get anything.
If this is a concern of yours, please contact us today.
Accounting Solutions Ltd. stands ready to complete our mission and purpose of protecting you, your family, and your business. Whether you need Employee Retention Credits, M&A Due Diligence, Payroll Services, and Accounting and Tax Work, you have but to ask. I’m here and I remain,
Accounting Solutions Ltd.
Note that the only professional services provided by Accounting Solutions Ltd. are those specified in a written communication from our office detailing the scope of services to be rendered and the terms and conditions applicable to the engagement.