The IRS Is Looking to Increase Tax Enforcement: What You Need to Know
The IRS is currently hiring thousands of new tax auditors. This massive push in increasing audit personnel isn’t just to fill desks at the office; they’re gearing up for a possibly massive push on tax enforcement. That means more auditing for tax returns, and more auditors to do the job. How might this impact you? Here’s what you need to know.
Connection to the New Infrastructure Plan
Back in June, President Biden celebrated a deal with senators on a $579 billion infrastructure plan that would fulfill a huge part of his economic agenda. $40 billion of that budget would be dedicated to expanding audits, particularly on the wealthy. Specifically, the IRS is looking to add about 2,000 new workers to their small business unit, including 1,300 revenue agents, before their fiscal year ends next month. They’ll also be adding over 500 personnel to their criminal investigations division this year.
Collecting Unpaid Taxes
The increase in staffing would allow the IRS to quickly and significantly expand their audit capacity if Congress is able to pass a bipartisan infrastructure investment plan. By doing so, the IRS could generate $100 billion in new tax revenue in their audits of corporations and wealthy individuals.
The organization has faced criticism in recent years regarding their audit rates of high-earning individuals and corporations, which fell due to declining employee numbers and budgets. It’s believed that, this year alone, there could be as much as $1 trillion in unpaid taxes.
How Could This Impact You?
Now, you’re probably wondering how this buckling down on audits might impact you. For the average wage-earning American, it likely won’t have a significant impact. However, if you’re a high-income earner or your own a business, your odds of being audited are likely going to rise significantly. It’s now more important than ever that you ensure your taxes are filed properly and that you maintain the proper records for the correct number of years in the event of an audit.
How to Reduce Your Odds of Being Audited
If you’re concerned about an audit, there are a few “red flags” that you should avoid to reduce your odds of being audited:
1. Avoid overestimating the value of donations and other deductions. Generally, it’s a good idea to value any items you’re donating at under 30% of their original purchase value.
2. Double check your math to make sure there are no errors. If the columns don’t add up properly, you’ll likely be audited just for the sake of correcting your math. This is another good reason to have a professional accountant handle your tax filings for you.
3. Make sure you sign the return before submitting it. It sounds simple, but a surprisingly large number of individuals will forget to sign their paper returns, and this will automatically get you some extra scrutiny. E-filing usually prevents this, as you can’t submit it without a digital signature; a CPA will also ensure your documents are signed before filing them for you.
4. Don’t leave out any sources of income, even if you think you can get away with it. While it’s true that the IRS won’t necessarily be able to tell that you’ve underreported your income, there are many times when they can tell something’s amiss, and you’ll be audited because of it.
5. Make sure you really do qualify for that home office deduction before taking it. This is the most-often audited deduction out there, so if you’re going to include it, be prepared for an audit, and be prepared to show that you really do qualify for it.
While you can avoid the things above to help reduce your odds of being audited, there are simply some people who are more likely to be audited with this new push. This includes:
- Individuals who earn more than $100,000 a year
- Shareholders in a limited partnership
- Small business owners
If you fall into any of these categories, we strongly recommend that you work with a CPA to file all your returns.
How We Can Help
If you’re concerned about being audited in the upcoming IRS tax audits, we encourage you to reach out to us. We can review your past filed returns to see if we need to file any amendments, and we’ll help you with filing any upcoming tax returns. When you work with a CPA to file your returns, we can support you and represent you in the event of an IRS audit, making the process easier, smoother, and less stressful for you.
Camputaro and Associates
Certified Public Accounting Firm
136 N. Orchard Street, Suite 8
Ormond Beach, FL 32174