The IRS has been understaffed for many years, and this has led to a decline in the number of audits conducted.  The personnel shortage has also made it difficult to keep up with the growing complexity of the tax code and to audit high-income taxpayers, partnerships, and large corporations.

The IRS solution is a plan to hire 3700 experienced accountants and other tax professionals as Revenue Agents who will audit high-income taxpayers and complex tax returns.  This is the latest step in a broader push to bolster the IRS’s workforce and strengthen tax enforcement. 

The hiring surge is the result of increased funding from the Inflation Reduction Act (IRA), which became law in August 2022.  The IRS has said that it will use the IRA funding to focus on high-income earners and corporations that are evading taxes. The IRS has also said that it will not use the IRA funding to increase the audit rate for taxpayers making less than $400,000 per year.

So what does this mean for the corporations, partnerships, and high-income individuals involved? 

First, it leaves them with a greater chance of being audited.  The IRS will likely increase its random selection and computer screening audits.  It is also likely that the Service will ramp up related examinations, which are audits of returns when they involve issues or transactions with other taxpayers, such as business partners or investors, whose returns were selected for audit.  When one or more individuals and entities have been selected for audit, it is important for related entities to examine their exposure and relationship.

Second, Individuals and entities who fall within the IRS’s new focus areas should be prepared for increased audit scrutiny and that scrutiny will come from an inexperienced workforce.  Even if the new 3700 employees have a background in accounting or other tax areas, they are new to the IRS.  This means that taxpayers will suffer the additional time and cost while these employees learn the ropes.

The audits of high-income taxpayers and complex tax returns may involve countless tax and legal issues.  When faced with an audit or the potential of increased IRS scrutiny, it is important to consult with professionals who have extensive tax knowledge and experience with defending audits.  An experienced tax professional can help taxpayers prepare for the challenges of an audit and guide them through an evolving tax enforcement landscape.