IRS Audits are Coming and We Know What To Worry About

The IRS is loaded with cash and ready to roll and audits are the focus.

Yea, the IRS was supposed to get $80 billion and now they’re not but they still got $60 billion (although it may shrink even more) over 10 years in addition to its annual funding.

It’s still a VERY decent chunk of change, which allows the IRS to make lots of changes to many aspects of its operations but especially its audit department.

According to expert Dustin Stamper, who works in the National Tax Office of Grant Thornton in Washington, D.C., "The IRS that you are dealing with today or dealt with last year is not the same IRS that you're going to be dealing with in two to three years."

Begin fortifying your defenses now.

Here’s How:?

1. Stay Alert

IRS Commissioner Danny Werfel said in March 2024 that the Service sent notices to 125,000 high income taxpayers who have not filed a federal income tax return since 2017, including 25,000 people making over a million dollars. It's drilled down on the use of corporate jets. And it's collected $520 million in tax since mid-2023, owed by millionaires.

How’s that happening?

One reason is the influx of competent staff.

In May, the IRS reported in its annual update to its Strategic Operating Plan that it already increased the number of revenue agents by about 9% over the prior year's numbers.

"This is enough money for the IRS where they don't have to make tough decisions between priorities anymore," Stamper said. "They don't have to decide, 'Oh, do I go after this or this? Do I prioritize this or this initiative?' They have enough money now that they can say, 'Yes, I'm going after this and this and this.' … The audit activity is absolutely going up across the board."

Now they can go after it all.

2. We Already Know Where the IRS Wants to Focus

Knowing that audits are increasing is great…or at least it puts you on edge.

But there are certain areas that the IRS has indicated they’re initially going to focus on.

They intend to take a hard look at research and development credits.??

Reviewing R&D credits isn't new, but with money, staffing, and new technology, the IRS is feeling gooood.

Other items that will catch the Service's attention, Stamper said, include partner capital accounts, energy credits, and digital assets.

But that’s not all.

More money also means new technology for an IRS unit that’s using very very old technology, some of which I’ve been told is from the 1960s.?

It’s updated technology that’s giving them the ability to review certain areas much more prevalently and spend much more time doing it much more carefully.

"If you look over the last few years, it's not just that they weren't auditing all that many partnerships. It's that they weren't even finding stuff when they were there," he said. But once they're in there, they're not going to want to get out of there unless they find something…"

New technology allows them to do that.

Although high-income individuals and partnerships will see the largest increases in examinations, even C Corporations are about to get caught in the crossfire.?

3. Be Proactive

IRS audits are about to increase. I think I’ve made that clear.

So don’t wait for an audit notice to get into action.

Talk to your tax professional now and make sure everyone’s on the same page.

Make sure you all agree on a strategy moving forward.

Start organizing your financial records now.

By getting proactive, you can get yourself and your finances ready for the audit avalanche.

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The IRS has a new attitude.

It's empowered and confident, using better technology, and it wants to make people pay "their fair share." (A buzz phrase that apparently never gets old).

You've been warned…

PS: I brought up taking a proactive approach.

How are you preparing for this?