Will More IRS Funding Increase Your Risk for a Tax Audit?

President Biden’s $80-billion proposal to increase IRS funding may result in more tax audits for big and small businesses. IRS report shows that real estate investors and restaurant owners account for the biggest percentage of uncollected taxes. Specifically, pass-through businesses are a perfect avenue for tax cheats. The proposal aims to beef up technology, bank reporting, and enforcement employees. These measures may generate tax revenue of around $700 billion over the next ten years.

Beefing up the IRS Funding

Biden’s plan comes at a time when the IRS seems overwhelmed by a large number of returns. Over the last decade, the agency has lost over 33,378 staff members, including those in charge of collecting delinquent taxes and auditing returns. The downsizing has led to fewer audits for wealthy filers.

Despite the number of millionaires increasing by almost two digits, tax audits have dipped from 40,965 in 2012 to 11,331 in 2020. These figures represent a 72% drop. Besides wealthy taxpayers, the decrease in funding has also affected ordinary taxpayers. In fact, data on the National Taxpayer Advocate shows that IRS responds to just 24% of calls, disadvantaging millions of taxpayers struggling with a raft of tax changes amidst the COVID-19 pandemic.

Proponents say Biden’s plan could be instrumental in raising funds for his 1.8 trillion American Families proposal. Opponents claim it may overburden small businesses without necessarily generating the promised tax revenue.

Through an email to CNBC.com, IRS Commissioner Chuck Retting said solid and sustained IRS funding is key to ensuring the agency can perform its duties of running a just and effective tax system. He added the agency requires more resources to investigate underreported income and to go after wealthy taxpayers who use different schemes and structures to evade tax liability.

Small Businesses at Risk of IRS Audits

Biden’s proposal may lead to more audits for certain small businesses, especially those raking in high amounts of earnings. Cash-only small businesses, such as real estate companies, retail, restaurants, and other service-based corporations, could face more IRS audits.

In Las Vegas, a tax attorney can help a small business owner prepare for an IRS audit, including gathering crucial documents, keeping books up-to-date, and answering questions from IRS representatives. The attorney can also guide the business owner on developing the ideal strategy to fix his or her tax problems.

Taylor L. Randolph

Taylor L. Randolph, the founder of Randolph Law Firm, P.C., located in Las Vegas, Nevada. He focuses his practice on bankruptcy, foreclosure prevention, and IRS tax problems. An award-winning attorney who is admitted to practice before the IRS nationwide, Taylor excels in the representation of individuals and businesses who are facing legal challenges.

Years of Experience: Nearly 20 years
Nevada Registration Status: Active

Bar & Court Admissions: Nevada State Bar Association U.S. District Court District of Nevada, 2006 U.S. Supreme Court, 2006 U.S. Tax Court, 2006