IRS Plans to Increase Audit Rates for Corporations, Partnerships, and Multimillionaires

IRS Plans to Increase Audit Rates for Corporations, Partnerships, and Multimillionaires

The Internal Service (IRS) recently announced its strategic operating plan to significantly increase audit rates for big corporations, partnerships, and multimillionaires over the next three years. This move comes as part of the IRS’s efforts to boost enforcement spending and hiring in order to enhance tax collections. The IRS’s plan includes targeting a near tripling of the audit rate on corporations with assets over $250 million, a significant increase in audit rates for complex partnerships, and a 50% increase in audit rates for individuals with total positive annual over $10 million.

The IRS’s plan outlines a sharp increase in audit rates for corporations, partnerships, and multimillionaires, aiming to close the “tax gap” between taxes owed and those collected. Specifically, the IRS intends to triple the audit rate on corporations with assets over $250 million to 22.6% in the 2026 tax year. Additionally, for complex partnerships with assets over $10 million, the audit rate will increase by nearly 10-fold, to 1% in tax year 2026. Individuals with total positive annual income over $10 million will also face a 50% increase in audit rates in the 2026 tax year.

While the IRS plans to intensify audits for high-wealth individuals and entities, it emphasized that audit rates will not increase for individuals and small businesses under $400,000. This decision aligns with President Joe Biden’s pledge not to raise taxes on this segment of the population, ensuring that lower-income earners are not subject to heightened IRS scrutiny.

The IRS’s strategic operating plan is supported by $60 billion in funding from the 2022 Inflation Reduction Act, which aims to modernize the IRS’s computer systems, enhance taxpayer , and ramp up enforcement to address the tax gap. The agency plans to allocate $7.25 billion of the Inflation Reduction Act funds in fiscal 2024, with increased spending in subsequent years to reach a total of $57.82 billion through fiscal 2031.

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Despite the IRS’s efforts to increase enforcement and hiring, the agency has faced criticism and funding challenges. Some Republicans have viewed the IRS spending as harassment of Americans over their taxes and have successfully reduced the funding allocated to the agency. A recent top-line spending deal is expected to cut the IRS funding by $20 billion, which may impact the IRS’s ability to achieve its hiring goals and enhance tax enforcement.

The IRS has ramped up hiring using funds from the Inflation Reduction Act, bringing on 13,661 new hires in fiscal 2023, including taxpayer services and enforcement staff. The agency plans to further increase its workforce to 16,314 in fiscal 2024, with a focus on adding more enforcement personnel. Despite these efforts, the IRS may fall short of Commissioner Danny Werfel’s goal of reaching an IRS workforce of over 100,000 within the next three years.

The IRS’s plan to increase audit rates for corporations, partnerships, and multimillionaires represents a shift towards more aggressive tax enforcement. While the agency aims to close the tax gap and improve collections, it faces challenges in funding and criticism from some quarters. The impact of these changes on high-wealth individuals and entities, as well as the IRS’s workforce, remains to be seen as the agency moves forward with its strategic operating plan.

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