$80 billion in new IRS Funding
The IRS has a backlog of millions of unprocessed paper tax returns and taxpayers/tax professionals can’t get through to the agency on the phone. Congress noticed and took action by passing a massive funding of the IRS in the recently enacted Inflation Reduction Act.
The IRS will get an additional $80 billion over the next decade. This includes $35 billion for taxpayer services, operations support, and business systems. Staffing increases are anticipated to be between 20,000 – 30,000 workers over the next decade and the number of revenue agents could increase to 17,000 by 2031— over twice as many as today.
The IRS will have an additional $45 billion to spend on enforcement. Although Treasury Secretary Janet Yellen has promised that IRS audit rates will remain at “historical levels” for taxpayers earning less than $400,000 annually this remains to be seen.
My best recommendation is to plan as though you will be audited. You should keep complete and accurate records and file a timely tax return.
Here are a few special areas of concern:
· Cryptocurrency. You can expect increased IRS audits dealing with cryptocurrency transactions. If you’re one of the millions of Americans who engage in such transactions, make sure you keep good records and report any income you earn.
· S Corporations. If you’re an S corporation shareholder-employee, you should have your S corporation pay you an arguably reasonable salary and benefits, and document how you arrived at the amount.
· Sole Proprietorships. If you operate a sole proprietorship and report over $100,000 in gross receipts you are seven times more likely to be audited as compared to an S Corporation reporting similar revenue based on historical data.
Are you taking the necessary steps to avoid IRS attention? If you are not sure, please contact me.