You’ve seen the news. You’ve seen the lightning flashing, and thunder roaring. You’ve heard the cries in the street!
“Oh my God! The IRS is hiring 87,000 people to come get us!”
“They’re coming for the poor and middle class!”
“Audits are going to increase!”

Lions, tigers, and bears! Oh MY!

The IRS is getting $80 Billion

Yes, the IRS is getting $80,000,000,000. That’s what $80 Billion actually looks like numerically. Anywho, this $80 Billion will be dispersed over 10 years. Here is a breakdown of the funding: Enforcement $45.6 Billion, $25.3 Billion for Operational support, $4.8 Billion to modernize IRS business systems (administration of taxpayer services, operations, and cybersecurity).

Backstory: The IRS has been underfunded for DECADES. They have antiquated systems that rival MS DOS. The irony is not lost in that systems received the least amount of funding. The IRS is also dealing with the Great Resignation.

The IRS is hiring 87,000 new Agents

Cool your jets!  1. These are not all going to be auditors. 2. They aren’t being hired Tuh-Day!
The IRS is facing the normal attrition of retiring individuals. They are also facing the same hiring struggles as every other business. 

 “It’s hard to hire for the IRS, when Target is paying $20 per hour”. ~Chuck Rettig, Commissioner of the IRS

There isn’t going to be a formation of an Army of Revenue Agents looking like the First Order in Star Wars, at least not TUH-DAY!

More Audits?

In the IRS’s strategic plan from a few years back, they told us they were going to be targeting high income non-filers. That plan has not changed.

The headline of the Treasury Inspector General for Tax Administration (TIGTA) report from May 2020 was: “High-Income Nonfilers Owing Billions of Dollars Are Not Being Worked by  the Internal Revenue Service”. Guess what’s going to be happening now? 

The headline of  TIGTA’s December 2020 report was: “Billions in Potential Taxes Went Unaddressed  From Unfiled Returns and Underreported Income by Taxpayers That Received Form 1099-K Income”. 

The enforcement initiatives are not a surprise. Now, everyone is yelling, “Get your documentation in order”. If you prepare your return as if the IRS will show up tomorrow, they could hire a million revenue agents, which wouldn’t matter to you.

Enforcement 

The lion’s share of the funding is going to enforcement. The goal of enforcement is to close the tax gap. According to the Treasury Department, the tax gap was $554 Billion in 2019. Approximately 84% percent of taxes owed in tax-year 2019 were actually paid or collected.

During the pandemic, the government stopped collection action. Since the pandemic is ‘over’, collection actions have resumed. If you have an outstanding tax liability, the IRS is pressed to get some sort of resolution – whether it’s an installment agreement or Offer in Compromise. Your goal as the taxpayer is to pay the least amount possible. The IRS’s job is to collect as much as possible. 

PPP Loan Fraud

Ahhh, we can’t talk about enforcement without talking about PPP Loan fraud! What types of PPP loan applications do you believe dominated the fraud? It was the Schedule C application. People were promoting PPP loans like they were an MLM like this case. People with absolutely NO financial background were out in these streets selling PPP loan application assistance like candy, helping people apply for fraudulent loans in exchange for a cut of the proceeds. The thieves submitted fraudulent Schedule Cs and false employee tax returns (941s) to obtain money they weren’t entitled to receive. Now the chickens are coming home to roost. A New York Times article (Aug 16, 2022), states: 

There are currently 500 people working on pandemic-fraud cases across the offices of 21 inspectors general, plus investigators from the F.B.I., the Secret Service, the Postal Inspection Service and the Internal Revenue Service.

It also states:

The federal government has already charged 1,500 people with defrauding pandemic-aid programs, and more than 450 people have been convicted so far.

The Inflation Reduction Act increased the time for the government to prosecute PPP Loan thieves to 10 years. They stole taxpayer money. Should the government not work to get it back?

Status of the IRS

The image above is of the cafeteria in the Austin Tx processing center. According to the Washington Post, as of July 29, the IRS had a backlog of 10.2 million unprocessed individual returns. The IRS has severely outdated systems – paper-people based systems, fax machines, and the lack of ability to scan documents in the computer. Paper returns have to be manually keyed in. The pandemic only exacerbated the situation. 

You may not like it, but the IRS needs this funding. It’s that simple. The changes will not happen overnight. You have time to get your documentation life together, so that in the event you are audited, you’ll be ready.