IRS Audit Blitz Underway: Who’s a Target?

The IRS is about to put all of the the funding, personnel and technology advantages it now enjoys to use. Count on an upswing in audits of wealthy companies as well as owners and investors who run afoul of tax regulations.

The then Democrat-controlled Congress and President Biden meant business in the summer of 2021 when they allocated $80 billion to beefing up the IRS as part of the Inflation Reduction Act. Since then, IRS staffing has ballooned past 102,000, and older employees are retiring and making way for the new guard of tax cops. Funding didn’t just go toward personnel — the feds also invested in AI technology that’s designed to pinpoint sources to audit.

IRS plans to double its audit rate of wealthy individuals earning more than $10 million, from 11% in 2019 to 16.5% in 2026. “The IRS also plans to triple the audit rates of large corporations with assets over $250 million, as well as increase the audit rates of business partnerships with assets over $10 million by tenfold over the seven-year period,” according to CNN.

The IRS now charges 8% interest on unreported income after a rule change made last fall. Previously the Service could charge 3% interest for underreporting.

Audit Mistakes Happen: Will the IRS Snare Honest Taxpayers?

Mainstream media outlets mostly cheered the news and emphasized the need for the IRS to find and punish “tax cheats who don’t pay their fair share.” They largely ignored the reality — the IRS makes mistakes. Not every business or individual who’s threatened with or undergoes an audit is guilty of defrauding the government.

The Service keeps its audit win rate as close to the vest as possible, but various sources estimate the IRS comes out on top in roughly 70% to 80% of audits historically. What about the businesses and individuals who play above the board and are singled out for an audit?

Will that number increase or decrease under the IRS’ auditing initiative using AI? Will wealthy multi-national corporations be actually be audited more or will it be small businesses facing greater IRS scrutiny? We don’t know the answers to those questions, but they’re worth asking.