The IRS plans to triple the audit rates on wealthy individuals and corporations earning more than $10 million per year

CNN recently reported that the Internal Revenue Service detailed its plans in early May, 2024 to significantly ramp up audit rates of wealthy taxpayers and large corporations, using funds provided by the Democrat-backed Inflation Reduction Act that passed in 2022.

The IRS is gearing up to intensify its audit efforts to crack down on tax evasion and bolster revenue collection for the U.S. Treasury. However, according to IRS Commissioner Danny Werfel, not all taxpayer groups will face heightened scrutiny. Werfel highlighted that while the agency’s strategic plan for the next three tax years includes a significant increase in audits, it has reiterated its commitment to not amplify enforcement measures for individuals earning less than $400,000 annually – a threshold encompassing the majority of U.S. taxpayers.

This targeted approach signals the IRS’s intent to focus its enhanced audit efforts on higher-income taxpayers and corporate entities, where the potential for revenue recovery is more substantial. By concentrating its resources on these segments, the agency aims to strike a balance between rigorous tax compliance and minimizing the burden on lower-income individuals and families.

Werfel noted that the IRS aims to send a clear message by concentrating its efforts on large corporations, intricate partnerships, and affluent individuals earning over $10 million annually. This targeted approach underscores the agency’s commitment to rigorous enforcement. It emphasizes the importance of tax compliance among entities and high-net-worth individuals with substantial financial resources and complex tax obligations.

The IRS is poised to significantly ramp up its audit efforts for high-income taxpayers and large business entities. Specifically, the audit rate for individuals earning more than $10 million is expected to surge by 50%, rising from 11% in 2019 to 16.5% by 2026.

Moreover, the agency plans to triple the audit rates of large corporations with assets exceeding $250 million. Additionally, the audit rates for business partnerships with assets over $10 million will see a tenfold increase over the seven-year period.

This strategic targeting of audits toward affluent individuals and substantial business entities underscores the IRS’s commitment to robust tax compliance and revenue collection from those with significant financial resources and complex tax obligations.   

Ramping up audits with new staff and AI    

After years of budget cuts, the IRS is rebuilding its audit capabilities to focus on complex financial activities.

• Staffing Up: The agency has hired over 11,000 new employees since 2022, including auditors, customer service representatives, and other specialists.
• Technology Investments: The IRS is leveraging AI to identify businesses for targeted audits.
• Increased Scrutiny: These efforts have already recovered $520 million in unpaid taxes from high-net-worth individuals.

With plans to add 14,000 more positions by 2029, the IRS signals a shift towards stricter enforcement for large corporations and wealthy taxpayers.

Conclusion 

These ramped up audit efforts are a continuation of the IRS’s recent efforts to narrow the over $600 billion “tax gap” through issuing compliance letters to high income non-filers and focusing on employee retention credit claims, among other actions. If you have any questions about your particular situation feel free to reach to Huckabee CPA for a free consultation.