IRS Budget Increase: Will It Impact the Audit Rate

IRS Budget Increase: Will It Impact the Audit Rate


In September of 2021, the Congressional Budget Office announced a proposal to increase funding for the Internal Revenue Service by as much as $80 billion over the next ten years. The argument is that doing so would ultimately increase the revenue the organization is able to generate by as much as $200 billion over the next decade. 


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A significant portion of the new money — to the tune of about $60 billion — is aimed at empowering enforcement actions in particular. All told, that means by 2031, the IRS will double the number of people working for it and will have a 90% higher budget than they do right now.

This, of course, has led people to wonder — does that mean that more people than ever are about to get audited?

Obviously, the situation is a lot more nuanced than people on both sides of the aisle are giving it credit for. Therefore, understanding what this means and what implications it may have requires you to keep a few key things in mind.


IRS Audit Rates

While it's difficult to say exactly what the future might hold, some Republicans believe that the plan would indeed increase the rate at which people are audited. House Minority Leader Kevin McCarthy, for example, cited research saying that the funding would lead to an increase of 1.2 million additional audits each year compared to those that are taking place right now. More than that, he claimed that roughly 50% of them would target homes making under $75,000 per year.



See this related post from Dennis Harabin: An Advisory for All Entrepreneurs: IRS Crisis Arises
In the past, the filing threshold for 1099-Ks was when the gross amount of total reportable payment transactions during a calendar year exceeded $20,000, and the aggregate number of transactions for that payee in that year exceeded 200. Thus, entrepreneurs with a small side hustle selling merchandise on the Internet directly or through the likes of Amazon, eBay, and others may not have received a 1099-K in the past.



Why is there an IRS budget increase?

Others are not quite as pessimistic about the situation. According to a report filed in September from the CBO, it's estimated that the new funding won't necessarily lead to a "major increase" in audits in the strictest sense of the term. It's just that the IRS has been understaffed and underfunded for so long that they haven't been able to operate at their "normal" level of activity.

Therefore, the increase in the budget — and the new employees that it will bring with it — will simply allow audit levels to rise to where they were roughly 10 years ago. It's an increase over recent memory, yes — but historically, that isn't necessarily the case.



See this related post from Dennis Harabin: Be In the Know: The Reason Why Your Tax Return Is Delayed
Use electronic filing with direct deposit to receive your tax refund the fastest way. If your tax refund is delayed, you have options. You can call the IRS, but you should wait out the delays before putting yourself through this added stress. Due to the backlog, it can take 6-8 weeks to process your tax return.



Despite all this, the United States Treasury has stated several times that its goal is for audit rates to not increase for households that make under $400,000 per year. Again, it's difficult to know exactly what the future will bring with it — which is why this is one situation that many will be paying attention to moving forward.

If you'd like to find out more information about whether the IRS's new budget increase will impact the audit rate, or if you'd just like to discuss your own needs with someone in a bit more detail, please feel free to contact our office at 551-249-1040 today.


Do you have some questions? Dennis Harabin at Relax Tax can answer them!

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