Every year, the IRS makes inflation adjustments. With consistently high inflation in 2022, some experts are predicting larger adjustments than normal that can affect tax brackets in 2023.
With the recent passing of The Inflation Reduction Act, individuals who have unfiled tax years or unpaid tax debt may now expect an increase in IRS collection enforcement. Optima CEO David King and Lead Tax Attorney Philip Hwang explain how the Inflation Reduction Act can directly affect taxpayers and how to get compliant with the IRS.
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While there is no guaranteed method of avoiding audits, there are things to steer clear of that could trigger an IRS audit. The Senate recently approved nearly $80 billion in IRS funding, with $45.6 billion for enforcement, which could lead to more audits. Here are four things that the IRS has historically viewed as โred flags,โ which could increase the chances of an audit for taxpayers.
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From a pandemic to inflation, American taxpayers havenโt been able to catch a break since 2020. To combat the current state of the economy, Senate has passed a new bill with a ten-year plan called the Inflation Reduction Act.
With a massive increase in taxpayers filing for an extension, what does this mean for people who owe? How does the extension deadline work? Hosts CEO David King and Lead Tax Attorney Philip Hwang discuss these details and more in this weekโs episode.
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Between the inflation, the pandemic, and the Inflation Reduction Act, now is a scary time to owe back taxes. The bill has passed, granting the IRS $80 billion dollars in funds for their activity. Consequently, weโre expecting a massive increase in the agencyโs enforcement. Learn how the Inflation Reduction Act will affect IRS spending.
How will the Inflation Reduction Act will affect IRS spending?
Inflation Reduction Act funds will be added on to the annual money the IRS receives from Congress. This will be about $12.6 billion for 2022. Additionally, the 50% increase will be paid across four departments over the next ten years.
More than half of the funds are specifically going toward enforcement activity. IRS enforcement includes collecting back taxes, conducting criminal investigations, legal support, and monitoring digital assets. The other three areas that will also be supported include:
IRS operations- $25 billion for expenses such as rent, printing, postage, and telecommunications.
Customer service- $4.8 billion would be used for updating service technology. A callback service is in the talks.
Taxpayer assistance- $3 billion would go toward filing and account services or other taxpayer needs.
IRS Collections
With a large budget provided by the Inflation Reduction Act, the IRS is expecting to collect roughly $203 billion in federal tax revenue over the span of a decade. The net federal revenue would increase by more than $124 billion.
Government officials are also expecting the tax gap to close. So, the difference between the amount of taxes being collected and what taxpayers actually owe will be closer.
Tax Help for Taxpayers Who Owe
If you havenโt started the process of tax debt relief, itโs not too late. Preparing yourself with a team of professionals that are already working on your compliance could spare you from more penalties, stress, and possibly help you save some money. Optima Tax Relief is the nationโs leading tax resolution firm with over $1 billion in resolved tax liabilities.
From a pandemic to inflation, American taxpayers havenโt been able to catch a break since 2020. To combat the current state of the economy, Senate has passed a new bill with a ten-year plan. The Inflation Reduction Act is being sent to President Bidenโs desk, requesting nearly $80 billion to the IRS.
What is the Inflation Reduction Act?
While the funding will support the IRS, this will hopefully bring in more federal tax revenue to offset the cost of lowering prescription medicine and combating climate change. There are plans in motion to accomplish these goals, but federal funding to do so is lacking.
How will the IRS use these funds?
The IRS has been waiting for additional funding for years. In the last ten years, their activities have dwindled, and the agencyโs budget decreased more than 15%. While IRS Commissioner Rettig has previously stated that the backlog will be complete by the end of 2022, there are still 11 million unprocessed tax returns.
The IRS will hire more staff and have access to more resources, such as legal representation for larger cases.
Cons
Naturally, more staff and resources for the IRS means more IRS enforcement. This act could trigger more audits for middle class businesses and individuals.
Outcome of the Inflation Reduction Act
Government officials have also stated that the goal is not to go after small businesses, but rather the large corporations and high net-worth individuals with high-end noncompliance.
Senior Fellow at the Urban-Brookings Tax Policy Center Janet Holzblatt was quoted as saying, โThe goal should not only be to increase audits, but improve the productivity of audits. You want the IRS to select the businesses and people for audits who really have not been compliant.โ
How the Inflation Reduction Act affects people who owe
With more IRS enforcement on the way, itโs better to be safe and get in compliance as soon as possible. Optima Tax Relief is the nationโs leading tax resolution firm with over $1 billion in resolved tax liabilities.ย ย
