More Rich Americans Will Soon Be Hit With an IRS Audit, Werfel Pledges

• Increasing audit rates on large corporations to 22.6% in 2026, up from 8.8% in 2019.
• A tenfold increase in audit rates on large, complex partnerships with more than $10 million in assets, from 0.1% in 2019 to 1% in tax year 2026.
• Increasing audit rates on wealthy individual taxpayers, from an 11% coverage rate in 2019 to 16.5% in 2026.

The IRS also said it is addressing racial disparities in tax enforcement, following an academic study last year that found Black taxpayers were three to five times more likely to be audited than other taxpayers. After that study was published, Werfel said the IRS dedicated resources to “quickly evaluate the extent to which our exam priorities, automated processes, and the data we rely on contributed to this disparity. Our findings supported the conclusion that Black taxpayers are audited at higher rates than other taxpayers.”

“We are overhauling compliance efforts to advance our commitment to fair, equitable, and effective tax administration and hold ourselves accountable to taxpayers we serve,” he says in the strategic operating plan update. “We are investing Inflation Reduction Act resources in research that can help identify disparities across dimensions of race, ethnicity, age, gender, and geography, and we are using that research to continuously refine our approaches to compliance and enforcement.”

The IRS is using an infusion of funding provided by 2022’s Inflation Reduction Act to modernize the agency, improve taxpayer services, and collect more tax revenue from those who haven’t been paying what they owe.

A recent Treasury Department analysis says the IRS could turn the nearly $80 billion in funding it’s receiving from the Inflation Reduction Act into $561 billion in overdue and unpaid taxes collected over the next 10 years, higher than earlier estimates.

The Treasury report states that if the Inflation Reduction Act funding is renewed after it runs out at the end of fiscal year 2031, estimated revenues could be as much as $851 billion. However, Treasury warned that if $20 billion is cut from the IRS’s funding allotment, it would reduce revenues by over $100 billion.

In addition to its FY 2023 annual appropriation of $12.3 billion, the IRS received approximately $79.4 billion in supplemental funding over a 10-year period when President Joe Biden signed the Inflation Reduction Act into law in August 2022. Approximately $1.4 billion of that funding has been rescinded by lawmakers as part of debt ceiling negotiations earlier this summer. Another $20 billion or so will be cut and repurposed as part of the agreement last June between Biden and then-House Speaker Kevin McCarthy to suspend the debt limit and cap federal agency spending.

In January, Democrats agreed to an acceleration of the $20 billion cut in the IRS’s Inflation Reduction Act funding in an effort to get a full-year federal spending law passed to avoid a partial government shutdown.

In the update to its strategic operating plan, the IRS said underfunding from 2010 through 2021 significantly understaffed the agency across all of its work streams, most notably in compliance where overall staffing declined 30% since 2010. When the Inflation Reduction Act was signed into law in August 2022, the IRS had 8,400 revenue agents, down from 14,600 in 2010, while the number of large corporate, large partnership, and high-income individual filings grew rapidly over time, the agency said.

As a result, the audit rate for the largest corporations fell to a low of 8.8% in 2019, from 28.5% in 2010, and the audit rate for multimillionaires decreased by nearly 50% from 2010 to 2019, according to the IRS. In addition, the number of large partnerships grew by 70% from 2010 to 2019, but the IRS was only able to audit 0.1% of these partnerships, the agency said.

“The IRS is using the enforcement funding provided by the Inflation Reduction Act to hire accountants, engineers, economists, data scientists, attorneys, and tax experts with the specialized skills to examine the complex returns of large corporations, complex partnerships, and high-income individuals,” the agency said. “With the funding provided by the Inflation Reduction Act, the IRS has already begun to rebuild capacity and deliver results to improve tax fairness. Such results include collecting over half a billion dollars from millionaires with delinquent tax debt and examining the returns of large partnerships with questionable balance sheets. New enforcement staff will allow the IRS to double audit rates on the wealthiest taxpayers, reversing the sharp decline in audit rates over the 2010s.”

Since 2022, the IRS has added about 11,000 full-time positions, including personnel working on audits, and plans to add an additional 14,000 full-time positions with funding from the Inflation Reduction Act by FY 2029, Werfel said Thursday.

“The IRS will continue focusing on making improvements and efficient use of funding,” he said. “We highlight accomplishments rather than taking a victory lap because more work remains. But to stress the importance of continuing this momentum, the IRS will continue working to make a difference for the nation’s taxpayers. At the same time, it’s critical that the IRS has stable, secure funding to allow technology modernization and taxpayer service improvements to continue into the future.”