The rising tax gap is one reason IRS asked for $80 billion in extra funds… and got it. IRS audits have dropped dramatically over the past decade, especially exams of wealthy individuals, big corporations and pass-through entities. IRS now audits about 2% of individuals reporting incomes of $1 million or more, 6% of large C corporations with total assets of at least $10 million, and 0.1% of partnerships and S corporations. Compare this with audit rates of 8.4%, 16.6%, and .4% in 2010 for these same groups of tax payers. The downward audit spiral correlates with drops in IRS funding and personnel. The Inflation Reduction Act gives IRS $80 billion over 10 years to be used for enforcement and collection activities, operations support, modernizing business systems and improving taxpayer service.

Here’s what IRS officials say the agency will do with the enforcement money:

• Audit big corporations, pass-through entities, high-net-worth individuals, cross-border activities, virtual currency transactions and certain other schemes.
• Also, hire and train more revenue agents, tax specialists, collectors and IT pros.

Increased audits won’t happen overnight. It will take the agency time to hire experienced examiners and to train them to audit complicated tax returns.

IRS officials vow that taxpayers making under $400,000 won’t see more audits. However, many people are skeptical the IRS can make good on this promise.