Treasury Department Announces Heightened Scrutiny of Individual Taxpayers
In the eyes of the United States Treasury Department, taxpayers have had it easy for far too long. With chronic underfunding, it claims the Internal Revenue Service (IRS) has been under-staffed, with outdated technology, leaving it unable to collect the money it is owed. The result? A growing tax gap has left the Treasury and the IRS keen to catch up on lost income. With a recent boost in government funding to the IRS, it can now roll out a plan to enhance tax surveillance and auditing that will mean more scrutiny of individual taxpayers.
What will this mean for you? Are you suddenly at risk of an IRS audit? Many taxpayers will worry that they will now be in the crosshairs of the IRS. They even worry that mistakes on previous tax returns will make them a target for future IRS enforcement.
The most important thing you can do is stay up to speed on current IRS tax policies, keep your taxes organized and be aware that there is an increased expectation of scrutiny of individual taxpayers.
In 2022, the government passed the Inflation Reduction Act, pledging a significant increase in IRS funding over the next 10 years. Included were several broad categories designated to receive funding, including IRS enforcement.
At first, it wasn’t clear how the money would be put to use. In recent months, the Treasury Department – of which the IRS is its largest bureau – has made it clear. Enforcement dollars will be used to boost technical surveillance and increase capacity for audits, as it increases its scrutiny of individual taxpayers.
According to Forbes magazine, the number of billionaires in the United States has ballooned from 403 in 2010 to 735 in 2023. CBS News also reports that in 2022, the IRS received over 700,000 tax returns reporting an income of one million dollars or more.
Alongside this staggering increase in personal wealth, the IRS has fallen behind in its capacity to conduct audits, leaving a vast gap in taxes collected while providing plenty of opportunity for tax evasion among those who stand to gain the most.
Naturally, the Treasury Department wants to reset this imbalance. As further details have unfolded about the boost in funding to the IRS, it is not surprising the agency plans to target specific taxpayers first — especially those considered high earners or high-net-worth individuals, who have historically delivered the highest return on IRS audit dollars.
Targeted Groups Announced
It seems this imbalance is about to change. The Biden administration has made it clear that it plans to crack down on those evading taxes, especially the ultra-wealthy. As the IRS increases its scrutiny of individual taxpayers, it will prioritize high-net-income individuals and businesses.
How do you know if your family qualifies as high-net-worth? The current benchmark is $400,000. If your household earns more than this amount annually, or your mid-to-large size business has complex tax issues, you could face a higher risk of audit. In fact, the Biden administration has pledged to keep audit rates level for households earning less than $400,000 annually.
Those with complex taxes, whether individuals or businesses are also at greater risk. Naturally, complex taxes provide greater opportunities for tax evasion. With less fear of an audit in recent years, taxpayers have become less diligent in general. Those with complex tax returns have had plenty of opportunities to conceal income and falsify the amount of money they say they’ve earned.
As the IRS boosts its surveillance technology and its audit capacity, it is positioning itself to go after the high-income earners first. With an estimated 22 million millionaires in the United States, the IRS will have plenty of high-priority targets with its new scrutiny of individual taxpayers.
Mistakes and Oversights – What Can You Do?
What if you fall into the category of ‘high-income earner’ or ‘high-net-worth’? Should you worry that tax mistakes or oversights might put you at risk for an IRS investigation? It’s easy to worry that the government’s plans for increased scrutiny of individual taxpayers will mean you’re at higher audit risk, even for simple mistakes.
Everyone is at risk of making small mistakes on a tax return. While you may not be at higher audit risk for having made simple mistakes in the past, you can take steps to get organized and bring your tax history into line. This way, if you are selected for an IRS audit, it is more likely to go smoothly.
First, stay organized. Make sure you have copies of your tax returns over the last three years, at a minimum. If you’re late in filing your taxes or have missed filing them for any reason, make sure you file any past-due tax returns.
In short, while your income or the complexity of your taxes may ultimately determine whether you are selected for an IRS audit, getting organized and filing past-due taxes can help you minimize any mistakes or oversights that may cause the IRS to dwell on, or dig deeper into, your tax history.
Stay Current and Find the Right Help
Another way to boost your peace of mind is to stay up-to-date on how the IRS plans to use its new funding. While we know it will increase audits for higher-income earners, there may be additional details to follow, as the IRS puts its new funding into place.
As a starting point, follow the latest updates from the Treasury Department. As it fine-tunes or shifts direction in its scrutiny of individual taxpayers, you will have a heads-up, in case you need to take any action. Not only will you be reminded of details such as tax deadlines, but you’ll also have a broad sense of changes that could be coming.
In addition to following the news on IRS policies and tactics, it’s critical to stay current on your taxes. While the thought of diving into past tax seasons or filing past-due taxes may be overwhelming, the good news is you don’t have to face it alone.
Finding the right team of tax professionals will help you get organized and feel prepared. While the IRS boosts its scrutiny of individual taxpayers, having the right team on your side will increase your confidence and peace of mind.
Tax experts are up to speed on current tax laws and IRS policies, they are familiar with IRS audits and what you could expect on your end, should you be selected for an audit. Be sure to find a team of professionals who have a track record of success in negotiating with the IRS and make you feel you are in good hands.
At Franskoviak Tax Solutions, we have helped thousands of clients with IRS taxes and tax problems for more than 30 years. We provide comprehensive tax services with first-class expertise and a personalized, boutique-style approach. Speak to our team about personal and business taxes, IRS tax deadlines, payroll taxes, IRS tax relief and tax problems such as IRS tax notifications, payroll tax debt, delinquent taxes and more.
Start with a free consultation—we’re here to help you work through common tax problems, as well as more complex scenarios. With our expertise and experience, we are ideally positioned to help you, even as the IRS boosts its scrutiny of individual taxpayers.