Proposed IRS Budget Increase May Increase Audit Rates

The Congressional Budget Office proposed a substantial budget increase for the IRS in late 2021 that could increase their budget by up to $80 billion in the next ten years. The reason for this request is that increasing the budget of the organization could increase the overall revenue by $200 billion over the same period.

The majority of the increased budget, around $60 of the proposed $80 billion, is going towards improving enforcement action. This will double the number of people employed by the IRS and result in a 90% higher budget than they currently do.

This increase in the budget for the enforcement action raises the question, will more people be getting audited than ever before?

The situation and the potential outcomes are nuanced, and there are a few things to keep in mind regarding it.

What You Need To Know About the IRS Budget Increase

Exactly what the future will look like with this change is hard to say, but some Republican law makers believe that the plan would increase how many people are audited. House Minority Leader McCarthy cited research that the extra funding would add an extra 1.2 million audits each year compared to the current levels, and that about half of those extra audits would be households with less than $75,000/year in income.

However, others are far more optimistic about the changes. According to a report by the CBO, it was estimated that this increase would not necessarily lead to a large increase in audit rates. They propose that the IRS has simply been underfunded and understaffed for years and has not been operating at “normal” audit levels.

Therefore, the increase in budget for the IRS will result in audit levels returning to where they were about ten years ago and not an increase to abnormal levels.

The Treasury of The United States stated that the goal for the increase in IRS budget is for audit rates to not rise for households making under $400,000/year in income. The future is difficult to predict, and that is why this is a situation that a lot of people will be closely watching going forward.

If you would like to learn more about the potential impacts of the increased budget of the IRS or have any other questions, contact us today!