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Don’t Worry, the IRS Says They ‘Absolutely’ Won’t Audit You If You’re Middle-Class

Logan by Logan
August 10, 2022
in Finance
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Don’t Worry, the IRS Says They ‘Absolutely’ Won’t Audit You If You’re Middle-Class

Image Source- Cook CPA Group

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Nearly $80 billion in IRS financing, including $45.6 billion designated for “enforcement,” is one of the Democrats’ spending plan’s more contentious parts. This cash has sparked concerns about potential audit targets for the IRS.

In a recent letter to the Senate, IRS Commissioner Charles Rettig stated that these resources are “certainly not about increasing audit scrutiny on small firms or middle-income Americans.”

IRS Commissioner Charles Rettig. Image Source- Bloomberg

The Congressional Budget Office estimates that the investment will generate $203.7 billion in income between 2022 and 2031; nevertheless, opponents claim that IRS enforcement may have an impact on regular Americans.

“Our biggest worry in this is that the burden for these audits will land on Walmart shoppers,” on CNBC’s “Squawk Box” on Tuesday, Rep. Kevin Brady of Texas made a statement.

A 2021 Treasury Inspector General for Tax Administration study found that overall IRS audits decreased by 44% between fiscal years 2015 and 2019.

According to the research, audits decreased by 33% for low-to-moderate income taxpayers who claimed the earned income tax credit, or EITC, while they decreased by 75% for Americans earning $1 million or more.

During a May House Oversight Subcommittee hearing, Ken Corbin, the IRS’s chief taxpayer experience officer, stated that returns claiming the EITC “historically had high rates of improper payments and therefore require greater enforcement.”

These audits are typically less complex and many might be automated because many lower-income Americans are wage earners.

How the IRS selects which tax returns it will audit

The IRS currently utilizes software to provide a numeric score to each tax return, with higher scores more likely to result in an audit. When deductions or credits are too high or too low in relation to income, the system may flag a return.

Let’s imagine you earn $150,000 and deduct $50,000 for charitable purposes. According to Lawrence Levy, president and chief executive officer of tax resolution business Levy and Associates, you are more likely to undergo an audit since your income is “disproportionate” to what the system anticipates.

Unreported income, refundable tax credits like the EITC, home office or auto deductions, and rounded numbers on your tax return are a few further indicators that the IRS may audit your return, according to experts.

How increased funding may change IRS audits

It will take time to phase in the funds, hire, and train new employees, even if the legislation still needs to be approved by the House and signed into law.

The Treasury Department estimates that the IRS plans to hire 87,000 more agents.

Levy stated that rather than receiving cases worth tens of millions of dollars, new auditors might have a six-month training program.

“You’re not going to give a new trainee General Motors, for example,” he said. “It just isn’t going to happen.”

Depending on their return, Levy said self-employed taxpayers may have a higher probability of being audited. He added that even with error-free filing, the chances for traditional workers might not alter.

“The W-2 employee is much less likely to get audited than a self-employed person by far, in my opinion,” Levy said.

Of course, keeping correct records with thorough bookkeeping and retaining all receipts is one of the greatest ways to prevent future annoyances, he noted.

Tags: auditenforcementHow IRS audits may change with more fundinginternal auditIRSIRS Commissioner Charles RettigIRS Commissioner Charles Rettig said the resources won’t increase “audit scrutiny on small businesses or middle-income Americans.”IRS enforcement may affect everyday AmericansIRS may target for auditsIRS uses software to rank each tax return with a numeric scoretax the richtaxesThe Senate approved nearly $80 billion in IRS fundingwhich tax returns to auditwho may be targeted by future audits
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