The Internal Revenue Service (IRS) last week released an annual update on its Inflation Reduction Act (IRA) Strategic Operating Plan. The guide was originally published in April 2023 and outlines the agency’s plans to improve tax administration services following the passage of the IRA in 2022, which will provide the IRS with tens of billions in additional funding over the next decade.
The funding will go toward modernizing the IRS’s technology infrastructure, attaining a more diverse workforce, and increasing fairness in enforcement. The Thursday morning update focused heavily on increasing the audit rates of wealthy taxpayers and large corporations. Here is what you need to know about this initiative:
More audits of high-income taxpayers
The IRS estimates that $77 billion of the $683 billion tax gap can be attributed to high-income non-filers. Since the inception of the Strategic Operating Plan, the IRS has sent out more than 125,000 compliance letters to taxpayers who have not filed since 2017. As of January 2024, this initiative has recovered $520 million. The IRS pledges to further increase audit rates by more than 50% on wealthy individual taxpayers with total positive income over $10 million.
More audits of large corporations
The IRS says it has expanded its large corporate compliance (LCC) program, having opened examinations of 76 of the largest corporate partnerships in the United States. The LCC targets corporate taxpayers with assets averaging at $24 billion and taxable income averaging around $526 million per year. The IRS intends to triple audit rates on large corporations, defined as those having assets of over $250 million.
More enforcement hiring and training
After years of underfunding that resulted in insufficient resources to tackle noncompliance, the IRS plans to increase its hiring of accountants, lawyers, data scientists, and engineers who can bolster its capacity to audit high-income taxpayers and large corporations. As of March 2024, the IRS has increased its number of revenue agents by 9% this past year and has piloted a new approach to train new hires.
Improved analytics with AI
The IRS also seeks to enhance its analytics capabilities by using artificial intelligence (AI) to find cases of high-income individuals and corporations with the highest risk of noncompliance. Better analytics, the IRS says, will help minimize auditing taxpayers who are found to be compliant, thus creating more capacity to target noncompliance.