One provision in the Inflation Reduction Act aimed at improving IRS customer service has been met with criticism.
The legislation allocates $79.6 billion to the agency over the next ten years. That’s more than six times the current annual IRS budget. More than $45 billion of this money will be earmarked for tax payment enforcement, while the rest will go to operational support. Almost $5 billion will go toward technology, and nearly $3 billion will go to taxpayer services. A $15 million task force would be created and a report will be developed.
According to a May 2022 report from the Government Accountability Office, IRS audits have plunged over the past decade, with the biggest declines among the wealthy. The audit rate for Americans making $5 million or more dropped to about 2% in 2019, compared to 16% in 2010, the report found.
IRS Commissioner Charles Rettig said the $80 billion in funding would not increase audits of households making less than $400,000 per year.
“The resources in the reconciliation package will get us back to historical norms in areas of challenge for the agency — large corporate and global high-net-worth taxpayers,” he wrote in a letter to the Senate. “These resources are absolutely not about increasing audit scrutiny on small businesses or middle-income Americans.”
10 IRS Audit Triggers
If you’re worried this influx of cash, increased task force, and operational support might put you or your company in the IRS’s line of sight, here are 10 red flags that could trigger an IRS audit in 2022.
- Not accurately reporting your income
- Claiming too many charitable donations
- Running a cash-based business
- Reporting too many losses on Schedule C
- Deducting large entertainment expenses
- Claiming the home office deduction for a non-designated space
- Reporting taxable income, even in a new business
- Making too much money
- Using rounded or neat numbers
- Making mistakes on tax forms (working with a licensed CPA can help)
If you have concerns about being audited, please reach out to us. We can help you prepare for it.