Taxpayers can breathe a sigh of relief knowing the 2023 tax year is over—for the most part at least. Tax documents have been filed, money wires have been initiated, and the Internal Revenue Service (IRS) confirmed tax refunds are en route if you haven't received yours already. But for some, the end of tax season can result in a different outcome. Of course, no one files their taxes hoping to receive an audit letter from the IRS in return. This can be stressful, time-consuming, and sometimes even involve speaking with an in-person tax examiner. But now, audit rates are set to triple, the IRS cautions.
RELATED: IRS Data Shows Exactly How Likely You Are to Get Audited.
“An IRS audit is an examination or review of your information and accounts to ensure you're reporting things correctly, following the tax laws, and that your reported tax amount is correct. In other words, the IRS is simply double-checking your numbers to make sure you don’t have any discrepancies in your return,” explains NerdWallet.
According to the finance company, tax audits can occur at random, because your return is linked to another audited file, or due to shady activity.
“The IRS conducts tax audits to minimize the ‘tax gap,’ or the difference between what the IRS is owed and what the IRS actually receives,” explains NerdWallet, which is the scenario taxpayers are currently seeing playout in the IRS’ Strategic Operating Plan.
On May 2, the IRS unveiled its plans to bolster funding and explained how the agency aims to put its Strategic Operating Plan into motion. A key part of this, according to IRS commissioner Danny Werfel, is to increase audit rates and, consequently, cushion the U.S. Treasury’s pockets.
The threat of an audit surge is frightening enough to give anyone goosebumps. However, the IRS says the crackdown will be targeting “the wealthiest taxpayers, large corporations and large, complex partnerships by sizable percentages.”
The agency says taxpayers can expect to see an audit surge over the next three tax years. But for people whose annual income is less than $400,000, their filings will mostly remain unaffected.
"There is no new wave of audits coming from middle- and low-income [individuals], coming from mom and pops. That's not in our plans," Werfel told reporters, per CBS News.
As for wealthy individuals who make more than $10 million annually, they will have a 16.5 percent chance of being audited in tax year 2026, per the notice. Meanwhile, the IRS is tripling audit rates on large corporations with assets totaling over $250 million. Large, complex partnerships with assets over $10 million will see an audit hike of 0.1 percent to 1 percent in tax year 2026.
The surge is strategic, according to Werfel. Rather than harp on low- and middle-income filers, the IRS is refocusing its time and resources on cracking down on high-profile taxpayers and businesses who try to cheat the system.
"It sets an important tone and message for complex filers, high-wealth filers, that this is our focus area," Werfel stated.
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