The inflation reduction act recently added around $80 billion to the IRS budget through year 2031. What does this mean to you as a taxpayer?
There are many recaps claiming that this will pay for 87,000 new IRS employees, however; that was merely a suggestion in a 2021 report. They may hire all these new employees, but many will be assigned computer programming, customer support, and other duties with the majority being hired for enforcement. It is believed that an increase in enforcement of taxes already owed to the US Treasury will result in more revenue than the cost of the other programs in the Inflation Reduction Act. Janet Yellen, Treasury Secretary, has said that there is no intent to have added audits on households earning income is less than $400,000 a year. That is not to say there will be no audits on household with incomes less than $400,000 a year, but they are saying that there is no intent to target those households. The IRS has proven repeatedly to have an agenda all their own so only time will tell.
Additionally, the IRS still has more than 7 million individual tax returns that remain unprocessed from 2021 and prior years due to the backlog of mail during COVID-19. While they have claimed they will be caught up by the fall that has not happened. Some of the 87,000 employees are needed to ensure that they can get caught up and provide a better customer service experience. By the IRS’ own estimate only about 24% of the calls received have been answered because of their lack of employees. This is astounding considering they have received 100.5 million calls. Hopefully with added staffing they will be able to increase their customer service quality and answer more phone calls in a timely manner. It is important to remember that these employees would be hired over a period of 9 years ending in 2031.
IRS computer systems are grossly outdated and ineffective. Hopefully some of the funding to the IRS will allow for updates and upgrades in their system. The suggested amount of funding from the $87 billion to be used for business system modernization is $4.8 billion. Many groups are calling for a better free file service through the IRS.
With nearly 11% of Americans who are considered no longer in the labor force and only about 3% unemployment, staffing to this level will be a multi-year campaign and isn’t likely to happen quickly. Our recommendation for our clients is to remain calm and to not be overly concerned about the additional increase in spending or employees at the IRS. The average taxpayer will not be the target of increased enforcement efforts. Many will benefit from better customer service and computer systems. There is much to read on the internet and social media about the Inflation Reduction Act and unfortunately much of it is false. Please be careful about your sources and the information you receive to make sure you are getting accurate, and clear information. We have reviewed multiple recaps from different reliable sources, and we continue to gather details from the AICPA and FICPA to provide you updates.
If you receive an IRS notice, you should seek professional help no matter how trivial the matter may seem. An outstanding issue with the IRS can cause you other challenges so it is best to deal with it directly and on time to prevent further issues. We standby ready to help and we are ready to help you plan for this year’s taxes as well as for the future. If you have concerns about specific parts of the Inflation Reduction Act or would like to schedule an appointment to talk to one of us about how the markets are affecting your tax situation, please reach out to our office manager at 904-735-5832 or office@fordefirm.com
