IRS Budget Rumors—Here are the actual facts

Who is affected: All US Taxpayers

As part of the Inflation Reduction Act passed in the summer of 2022, Congress allocated $80 billion to the Internal Revenue Service. Given the significant amount of funding—far more than had been given in decades—the allocation became the subject of political spin on how the money would be used; for example, audits of middle income taxpayer tax returns will increase exponentially. That is simply not true. Here is what is true: the $80 billion would be spread across four different areas of the IRS over the next decade and here is how the funds are to be spent:

  • More than half, about $45.6 billion, will go toward strengthening enforcement activities for those that do not properly report, or who do not pa – including collecting taxes owed, providing legal support, conducting criminal investigations and providing digital asset monitoring for taxpayers that improperly or do jot report cryptocurrency transactions.
  • More than $25 billion would be allocated to support IRS operations, including expenses like rent payments, printing, postage and telecommunications. What—someone can actually call the IRS for help and get it, or get a response to a letter? Novel.
  • Nearly $4.8 billion would be used for modernizing the agency’s customer service technology, like developing a callback service.
  • Roughly $3 billion would be allocated for taxpayer assistance, filing and account services.
  • The remainder will be used to hire additional people to replace those that retired but could not replaced because of severe budget cuts. After taking into account employee retirements, the new funding should allow the IRS to increase the size of its total workforce by 40 to 50% over 10 years.

Treasury Secretary Janet Yellen sent a memo to the Commissioner of the IRS directing that audits of those with incomes under $400,000 are not to be targeted, except small businesses that appear to be submitting incorrect tax returns.

Our takeaway: small business, self employed and those with income over $400,000/year may be significantly impacted. This accounts for the majority of our client base; as such, we are tightening up our internal procedures to identify clients at higher risk of audit and working with them to avoid the potential.