IRS Gets Whopping Budget Increase Worth $80 Billion! What Does It Mean for Taxpayers?

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Recently President Biden signed a significant climate, tax bill and health care bill known as the Inflation Reduction Act. The bill comes with a package of $700 billion. The primary objective is to minimise the federal deficit by minimising health and energy costs. Additionally, it also gives the IRS a complete facelift.

In the package, IRS gets a whopping increase of $80 billion in the overall annual budget. This will empower the IRS gets more time to invest and resources in auditing large corporations and affluent taxpayers.

Let’s find out some useful attributes of the package and what impact it will have on the taxpayers.

How Does the IRS Plan to Spend $80 Billion?

As stated before, the IRS gets an annual budget of $80 billion under the Inflation Reduction Act, enhancing employment, enforcement and operations. If reports and IRS data are true, significant deduction in budget and employee layoffs in the last few years has resulted in a low audit rate and reached the decade’s low.

Lawmakers are optimistic that a new IRS can successfully reduce the overall federal deficit. This will be done by conducting more profitable audits and eventually collecting billions lost in the “tax gap” (tax gap is the difference in amount between the taxes owed to the government and those paid).

According to reliable sources, IRS is planning to dedicate $45.6 billion to the enforcement division. This will strengthen the overall enforcement division by hiring more enforcement agents. The institution is also planning to upgrade obsolete technology. A significant amount of funds will also be spent to improve the cryptocurrency transactions’ monitoring system.

Professional tax experts (whom include auditors, counsellors and tax attorney in the Bay area as well as from other locations) states that the only thing that safeguards taxpayers from making up things is a tax exam. But with the addition of the funds, it is said that one of the biggest initiatives is an increase in the level of exams. Things will get more transparent and tough if the taxpayer earns more than $200,000 in a financial year.

Different sources have revealed that half of the funding will be spent dedicatedly on enforcement, and the budget balance will be utilised for gearing up taxpayer services, operations, and business systems. Taxpayers have observed the consequences of budget reduction and laying off a government agency’s staff during the pandemic back in 2020.

It is in the public domain that the IRS has steadily declined its overall staffing in the last 10 years. This eventually caused some great headaches for the taxpayers.

With a $3 billion budget increase in the taxpayer service division, the IRS will now have a much quicker hold time. It is also true that the taxpayers will get a resolving answer even before a taxpayer have a balance owed to the IRS. Still, some officials and lawmakers think the IRS must invest even a higher percentage of the proposed budget for taxpayer services, contrary to the enforcement.

As per the reports of the National Taxpayer Advocate midyear, the ITS has 21.3 million tax returns as of June 22nd. Previously, IRS was one step away from collapsing from a well-functioning entity.

Adding or allocating more funds will help the brand reverse the underfunding of more than 30 years of time at the IRS. The agency’s enforcement positions have also shrunken by 30% since 2010. With the laying off of expert auditors, the IRS has shifted its focus from easy inspections to difficult ones involving lower-income households. It is interesting to note that they account for only an insignificant stake in unpaid taxes.

Research studies conducted by Syracuse University have stated that almost 46% of audits conducted by the IRS were intended at people who got an Income Tax Credit (Income tax credit is a break developed to enhance the income of low-wage workforces). People with the tax credit in their statements were asked more than three times. They come across IRS audits more than the overall taxpayers. Even when they account for a trivial share of unpaid taxes.

If you also encounter similar situations and have questions but can’t reach out to the IRS, don’t wait for miracles to happen. Get in touch with professional help from experts or tax law firms in San Diego or from your convenient location. The professionals will offer you the best solution as they know how the IRS works.

Key Priorities for the $80 Billion Funding

Reports suggest that the new additional funding of $80 billion will offer the IRS with monumental opportunity. And will transform the IRS completely. Some of them are:

  • Clearing the backlog
  • Enhancing the overall custom services
  • Improving the technology system of the organization
  • Hiring more IRS employees to replace the retiring workforce

Critics have claimed on several occasions that new funding will trigger maximum audits beyond wealthy taxpayers.

Who Will Have More Impact by the Higher Audit Rates?

Of course, individual taxpayers earning more than $200,000 or more in a year. Also, corporations earning more than $400,000 or even more every year will be the top priority. This way, you can have the proper justification of the efforts of the enforcement team of the IRS.

The federal government will have a lot of eggs on their face from large-scale enterprises paying $0 income tax. There’s no need to look too hard through online searches for innumerable corporations paying little or no income tax.

Again, the ultimate goal of increasing the funding to the IRS is to significantly augment the number of professionally trained enforcement agents, lawyers & accountants. The enlarged team will help deal with any fightback complex cases rather than just focusing on middle-income taxpayers.

Currently, the IRS spends almost 50% of the overall audits on households, making it almost $75,000 or even less. They do it because the households with minimum incomes are less likely to contest or fight back audit results. For all the households making $75,000 or less, the IRS make $10 for every $1 spent in the long collection process.

The additional funds will help the IRS target the households that fall. Still, many feel that this is not the actual or genuine reality for increasing funding to the IRS.

Are You Worried You Can be Next?

If your statements are clear and honest, there’s no need to worry. The IRS simply doesn’t target taxpayers who are on time with their taxes every year. More funding certainly means more audits are on the way. Do you fear your potential tax mistakes done in the past? Do you have concerns that IRS could be coming up your way next?

You might be the next audit account. But even after all these, you don’t need to worry. Some professionals can help you determine the next action plan. They also offer you the best solution in case you get notified of IRS audits.

Professional tax experts will create a unique plan based on your situation and solve the issue of IRS taxes. Did you get any notice from the IRS regarding audits, and what are your plans to move ahead? Please share your insights with us below in the comment section. Remember, one thing if you are truthful to the records, nothing can harm you. Never underestimate or neglect the notices from the IRS. Doing so will let you face severe consequences in the long run.

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