The IRS has been given an unprecedented budget of $80 billion under the Inflation Reduction Act, which was passed in August 2022. This funding will go towards enhancing taxpayer services, enforcement, operational support, and business systems modernization. Most importantly, the IRS plans to hire 87,000 new employees, with 20,000 to be hired over the next two years. With the likelihood of audits becoming much more frequent in the future, how can you make sure you are prepared?
While not all new IRS employees will become field auditors, this increase in staffing will help to replace retiring personnel and improve customer service. Initiatives such as expanded hours for Taxpayer Assistance Centers, greater access to on-demand services, and digitizing paper correspondence and non-tax forms will all contribute to a reduction of taxpayer burdens. Additionally, enhanced online accounts for payment schedules, better error and status reporting, and more credentialing of service providers for identity-proofing will improve the taxpayer experience.
By 2024, the IRS plans to implement better appointment scheduling, data analytics to predict staffing necessary to handle peak demand, and better service at Taxpayer Assistance Centers and by phone. Enhanced digital workflow processes, better taxpayer guidance, and more personalized taxpayer alerts will all help to address compliance and service issues.
However, the IRS also plans to increase its enforcement initiatives. With 20,000 new auditors being hired, the IRS will be able to better target individuals with an income of more than $400K annually. However, training income tax auditors takes about two years, so it remains to be seen how the IRS will train such a large influx of new auditors.
There are also concerns about how the IRS will choose which taxpayers to audit. With so many new auditors, there is a risk that new employees may dig in their heels on every case. Furthermore, while the IRS plans to use data analytics to predict staffing necessary to handle peak demand, it remains to be seen how effective this will be.
In conclusion, the Inflation Reduction Act and the hiring of 87,000 new IRS employees will undoubtedly have a significant impact on the future of the IRS. While initiatives to improve taxpayer services are certainly welcome, there are concerns about how the IRS will choose which taxpayers to audit and how they will train such a large influx of new auditors. The IRS will need to find a delicate balance between enforcement and service if it hopes to successfully navigate these challenges.
IRS audits are likely to increase with all of these recent changes coming about due to the Inflation Reduction Act. With the IRS increasing its enforcement efforts, having a CPA on your side who understands tax regulations and can provide guidance on tax planning is more important than ever. Going forward, it is crucial to work with a CPA firm that specializes in business tax accounting to help ensure that your company complies with all IRS requirements and stays out of trouble.
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