Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards

Financial Planning > Tax Planning > IRS Updates

Who Will the IRS Go After With Its $80B Budget Boost?

Your article was successfully shared with the contacts you provided.

The Inflation Reduction Act — signed into law by President Joe Biden on Aug. 16 — injects the Internal Revenue Service with $80 billion in new funds, and the big question now is how the agency will use it.

Republican lawmakers argue the funds will supercharge the IRS to hire 87,000 new agents to go after middle-class taxpayers. But President Joe Biden and top democrats maintain that the beefed up IRS will only institute more audits on those earning more than $400,000 per year.

Industry officials reached by ThinkAdvisor say that an onslaught of new audits will not be immediate.

Under the bill, the IRS gets a budget boost of $80 billion over 10 years — a big jump from the annual IRS budget of $12.6 billion.

On Wednesday, Treasury Secretary Janet Yellen set a six-month timeframe for the IRS to compile a plan on how it will deploy an influx of $80 billion in enforcement funding over the next decade.

‘Slow Build’

The budget increase will allow the IRS to hire more agents, “arming them with new technology focused on increasing the audit rate substantially on those earning more than $400,000,” Jeff Bush of The Washington Update told ThinkAdvisor in a recent email.

Biden and Yellen “have committed to not impacting joint filers earning less than $400,000 with higher audit rates,” Bush said Thursday.

“It will also take the IRS several years to hire, onboard and train new employees and deploy new technology. I don’t anticipate a large increase in total audit rates in tax year 2022,” Bush continued. “It will be a slow build as new staff and technology come on line.”

Republicans, Bush continued, “are suggesting the audits will reach deeply into the middle class, breaking Biden’s promise of not raising taxes on those under $400,000. Being outraged by this is to assume that someone underreporting their income at $399,999 is somehow less egregious than someone inflating deductions earning $400,001.”

The bottom line, Bush opines, “is time will tell. This is an easily measurable statistic with two data points (tax years 2022 and 2023) between now and the 2024 election. If the promise is broken, the Republicans will be able to make it a legitimate campaign issue.”

Army of Agents

Shai Akabas, director of economic policy at the Bipartisan Policy Center, told ThinkAdvisor Thursday in an email that IRS audit rates “have fallen precipitously in recent years, so adding staff to that portion of the agency is overdue. The vast majority of this additional enforcement activity is likely to be targeted at high-income individuals and businesses, which is where an outsized portion of tax revenue comes from.”

Akabas added that “it’s hard to believe that not a dollar of that new activity will reach lower- or middle-income individuals, but I certainly wouldn’t expect an army of new IRS agents going after the middle class.”

More Than Just Audits

Both Bush and Akabas agree that the IRS has a high attrition rate.

The agency’s “demographics are worse than the U.S. and China, with 50% of their most senior workforce eligible to retire in the next five years,” Bush said. “Most of the 87,000 anticipated new hires will replace those retiring employees across the organization.”

Many of the new hires “will be auditors, focused on significantly increasing the number of audits on higher-income individuals and corporations,” Bush added. The new agents “will also be armed with new technology, including AI, to scour returns looking for red flags and patterns to guide their efforts.”

The IRS “has been severely underfunded and understaffed for years, leading to serious customer service shortfalls, extensive delays in processing, and insufficient enforcement activities to close a wide tax gap — the difference between what is owed and what is paid in taxes,” BPC’s Akabas said.

The new funding “will help address all these issues,” Akabas added. “Many of the hires will replace retiring or departing personnel, and far from all of them will be focused on enforcement activities, such as audits.”

(Image: Thinkstock/iStock)


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.