Uncle Sam feels invigorated!
After several years of taking a relatively lax approach to auditing wealthy taxpayers, the Internal Revenue Service (IRS) has clearly turned over a new leaf under the Biden administration. In this capacity, he intensifies law enforcement and double verification rate for income categories over $100,000 in the last seven months.
This news comes directly from a tax declaration released in late May, which details that for the 2019 tax year, audit rates have seen a significant increase, especially for those earning more than $10 million per year. “Based on ongoing review activity, verification rates for revenue categories between $500,000 and $1 million have doubled to 0.6%. Audit rates for the $1-5 million category more than doubled to 1.3% and taxpayers earning over $10 million jumped fourfold to 8%,” the statement said.
So, in short, the more money you make, the more interested the IRS may be in auditing you, especially if you make six figures. Overall, audit rates have increased for each income bracket for returns filed in 2019, and those returns can be audited through 2023.
Some perspective is essential, however: although the IRS appears to be increasing audit rates, these rates have still dropped significantly over the past decade. The IRS statement shows that between tax years 2010 and 2017, audit rates for all income brackets dropped significantly — by more than 82% for those earning between $200,000 and $500,000, and more than 77% for portions between $1 million and $10 million. , for example.
Further away, another recent report from the U.S. Government Accountability Office shows that taxpayers with incomes over $200,000 saw their audit rates drop between 2010 and 2019. The largest drop in audit rates, as shown in this report, involved taxpayers earning between $200,000 and $500,000, who saw the rates drop 92%. For all taxpayers, the average verification rate fell from 0.9% in 2010 to 0.25% in 2019, a drop of 72%.
The big question: What changes now?
The main reason audit rates have dropped over the past decade is that the IRS itself is understaffed, which has only recently been addressed. In fiscal year 2021, the IRS employed 78,661 full-time workers, or nearly 13% decrease since fiscal year 2012. The IRS has been “massively understaffed,” wrote Natasha Sarin, a tax policy and enforcement adviser at the U.S. Treasury in a recent brief. “[The] the agency’s budget is so depleted that the workforce is at 1970s levels, 20% of employees are eligible for retirement, and hiring new workers is a months-long process where uncertain funding means the agency must assume the risk of bolstering its workforce, as vital funding to sustain them in the years to come is far from guaranteed,” she wrote.
Again, however, that changes. The IRS currently has 6,500 front-line officers and plans to hire 10,000 new agents this year and next year to try to resolve the backlog of returns. It is also looking to bolster its workforce this summer, by hiring more than 4,000 contractors at national scale.
As the IRS beefs up its staff, taxpayers can likely expect an increase in audit rates. While that may leave some taxpayers sweating about a possible audit, most Americans won’t need to worry. Although IRS Commissioner Chuck Rettig has sworn take an “effortless,” “everyone on deck” approach to audits and eliminate the agency’s current backlog of unprocessed returns.