The Internal Revenue Service (IRS) has announced plans to significantly increase audit rates for wealthy taxpayers and large corporations. This decision comes after the passage of the Inflation Reduction Act in 2022, which provided the agency with additional funding. The audit rate for taxpayers earning more than $10 million is expected to rise by 50%, reaching 16.5% by 2026. Similarly, the audit rates for large corporations with assets over $250 million and business partnerships with assets over $10 million will also see significant increases over the next seven years.
Despite the anticipated uptick in audits, the IRS has assured that audit rates for households earning less than $400,000 a year will not exceed the levels seen in 2018, a record-low year. The agency has emphasized its commitment to shielding middle- and low-income taxpayers from increased scrutiny. IRS Commissioner Danny Werfel has stated that there are no plans to target small businesses or the middle class with heightened audit rates.
To support the increase in audits, the IRS is hiring additional staff, including accountants, engineers, economists, data scientists, attorneys, and tax experts. The agency has added approximately 11,000 full-time positions since 2022 and plans to hire an additional 14,000 by fiscal year 2029. Additionally, the IRS is investing in technology, using artificial intelligence to select businesses for audits and improve taxpayer services.
The Inflation Reduction Act allocated about $80 billion to the IRS over a 10-year period, but Republicans have pushed for cuts to this funding. Despite opposition, the agency has made strides in modernizing its systems, expanding taxpayer services, and increasing efficiency. However, further cuts to IRS funding could jeopardize these improvements and lead to a decline in customer service quality. The agency has warned that it may run out of funds for system modernization by fiscal year 2026 if additional cuts are made.