Tax law is an area that is evolving. We saw changes a couple of years ago with the Tax Cuts and Jobs Act (TCJA) back in 2017. This law made changes that included adjustments to tax rates and the thresholds for income tax brackets. More recently, the Inflation Reduction Act in 2022 included changes to tax credits and deductions and also led to additional funding for the Internal Revenue Service (IRS).
The IRS and President Joe Biden both claimed that funding would not impact regular taxpayers — but instead the agency would use the funding to focus audit power on those making over $400,000 annually.
Has the IRS lived up to its promise?
It is not surprising that it is difficult to the get the IRS to explain exactly what it means by those types of statements. The data shows that the IRS audited less than 1% of taxpayers who make less than $500,000 annually in 2018. When pressed on the issue, IRS Commissioner Danny Werfel recently stated that the IRS will use this data as a baseline and is open to further discussion in the future.
Based on this information, it appears the IRS intends to follow through. Only time will tell if they stay true to their word.
What about those of us who make more than $400,000?
It is a good idea to prepare for the possibility of an audit. Take the time to make sure your tax filings are in order. If you are concerned about compliance, now may be the time to get the information you need to answer your questions.
In addition to high earners, the IRS is also notorious for targeting business owners and those with foreign assets. If either are part of your financial portfolio, it is wise to take extra care with your returns. The attorneys at Goldburd McCone are familiar with these issues and have experience fighting the IRS in the event of an audit. Know that if you are notified of an impending audit, you have options and can have legal counsel on your side.