Does Biden’s Inflation Reduction Act Really Mean 87,000 More IRS Agents Are Coming?
Professionals and taxpayers have been talking extensively about the Inflation Reduction Act that was signed into law by President Joe Biden on August 16 of this year. One element of this act was $80 billion in increased funding for the IRS, which will result in the hiring of 87,000 new IRS employees. Naturally, everyone is wondering whether this will increase taxpayer audits, what the new IRS employees will be doing, and in what other ways taxpayers might be affected by the anticipated increase in IRS agents.
How $80 Billion Will Change the IRS
The simple answer is yes, more audits are coming, but it will take some time as the IRS will need to recruit, hire, and train their new agents along with the support staff that will be required to support thousands of new employees and that won’t happen overnight. Approximately half of the $80 billion will be spent on enforcement; the remaining funds will be utilized for operational support, improved services, and technology updates. It’s important to note that these funds will be dispersed across a ten year period, meaning that the IRS will actually be receiving about $8 billion per year.
IRS Employment Before & After The Inflation Reduction Act
In the 2021 fiscal year, the IRS employed about 79,000 full-time employees, with about 35,000 of those employees focusing on enforcement. The IRS enforcement arm includes determining what taxes are owed, collecting due taxes from individuals and corporations, legal and mitigating action, criminal investigation, and statute enforcement. These enforcement actions were accomplished with a budget of approximately $5 million in the 2021 fiscal year.
On average, fewer than 1% of tax returns are audited. Although the Inflation Reduction Act will provide an additional $4.65 billion per year for enforcement, it will take several years for the IRS to employ and train enough new agents to increase the audit rate substantially. Employee attrition, training, and the complexities of logistical support for new agents will also need to be considered.
Will a Doubled Budget Translate To Doubled Audits?
Everyone is wondering whether almost doubling the enforcement budget for the next ten years will mean a doubling of the audit rate from under 1% to under 2%, which is still a minimal number. Although this is ultimately possible and even likely, it won’t immediately occur over the next few years.
Many people are concerned that lower income Americans will bear the burden of increased audits, and it’s likely that increased audits will ultimately be noticed across the board. However, it is widely indicated that the increased funding for enforcement will focus on high-end noncompliance, specifically businesses, and individuals who are earning over $400,000 per year.
Although the increased IRS funding is anticipated to result in approximately 87,000 new IRS workers, many of those employees will be hired to perform other functions within the agency, such as technical support, customer service, internal logistics, HR, and other positions. How many of these new IRS employees will be dedicated to enforcement will be announced in the future as the agency moves forward with their increased funding.
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