Uncle Sam is feeling invigorated!
After several years of taking a relatively lax approach to auditing wealthy taxpayers, the Internal Revenue Service (IRS) has evidently turned a new leaf under the Biden administration. As such, it’s stepping up enforcement, and has doubled audit rates for income categories above $100,000 over the past seven months.
That news comes directly from an IRS statement released in late May, which details that for the 2019 tax year, audit rates have seen a significant jump, particularly for those earning more than $10 million per year. “Based on ongoing examination activity, audit rates for income categories between $500,000 and $1 million doubled to 0.6%. Audit rates for the $1 million to $5 million category more than doubled to 1.3% and taxpayers earning more than $10 million jumped four times—reaching 8%,” the statement reads.
So, in short, the more money you make, the more the IRS may be interested in auditing you—especially if you’re earning six figures. Overall, audit rates increased for every income range for returns filed in 2019, and those returns can be audited until 2023.
Some perspective is critical, however: Though the IRS does seem to be increasing audit rates, those rates are still down significantly over the past decade or so. The IRS statement shows that between the tax years 2010 and 2017, audit rates for all income ranges fell significantly—by more than 82% for those earning between $200,000 and $500,000, and by more than 77% for the ranges between $1 million and $10 million, for example.
Further, another recent report from the U.S. Government Accountability Office shows that taxpayers with incomes of more than $200,000 saw huge drops in audit rates between 2010 and 2019. The largest decrease in audit rates, as outlined in that report, was for taxpayers earning between $200,000 and $500,000, who saw rates fall by 92%. For all taxpayers, the average audit rate decreased from 0.9% in 2010 to 0.25% in 2019—a 72% decrease.
The big question: What’s changing now?
The main reason audit rates have fallen over the past decade is that the IRS itself is lacking in personnel—something that’s only recently being addressed. During fiscal year 2021, the IRS employed 78,661 full-time workers, which was a nearly 13% decrease from fiscal year 2012. The IRS has been “massively understaffed,” wrote Natasha Sarin, a tax policy and implementation counselor at the U.S. Treasury in a recent brief. “[The] agency’s budget is so depleted that the workforce is at 1970s’ levels, 20% of employees are eligible to retire, and hiring new workers is a monthslong process where uncertain funding means that the agency must assume risk to build its workforce, as vital funding to support them in the years ahead is far from guaranteed,” she wrote.
Again, though, that’s changing. The IRS currently has 6,500 front-line agents, and it plans to hire 10,000 new agents this year and next to try and work through the backlog of returns. It’s also looking to boost its workforce this summer, by hiring more than 4,000 contractors nationwide.
As the IRS beefs its staff back up, taxpayers can likely expect audit rates to increase. While that may leave some taxpayers sweating about a potential audit, most Americans will have little to worry about. Even as IRS Commissioner Chuck Rettig has vowed to take a “no stone unturned,” “all-hands-on-deck” approach to audits and clearing the agency’s current backlog of unprocessed returns.