William Simpson
How the IRS is Using Artificial Intelligence to Make Sure People Don’t Game the System
The IRS says it is about to step up audits as it cracks down on tax fraud and seeks to deliver more revenue to the U.S. Treasury’s coffers. But not all groups of taxpayers will face increased scrutiny, according to IRS Commissioner Danny Werfel.
The IRS was bolstered by $80 billion in new funding targeted by the Inflation Reduction Act (IRA), which was signed into law in 2022 by President Joe Biden. The idea behind the new funding was to help revive an agency whose ranks had been depleted over the years, leading to customer service issues, processing delays and a drop in audit fees.
On Thursday, the IRS outlined its plans for the funding, as well as its efforts so far to improve the agency’s customer service operations, after some taxpayers faced months-long delays during the pandemic. IRA money helped the IRS respond to more taxpayer appeals during the tax season that just ended on April 15, as well as strengthen its enforcement, which led to the collection of $520 million from wealthy taxpayers who did not had declared their taxes or still owed money, he said.
“The changes outlined in this report stand in stark contrast to the years of underfunding” that led to a deterioration in the agency’s services, Werfel said on a conference call with reporters.
Werfel noted that the IRS’s strategic plan for the next three tax years includes a sharp increase in audits, although the agency reiterated that it will not increase its enforcement of people earning less than $400,000 annually — which covers the majority of taxpayers. from the USA.
Here’s Who Will Face a Surge in Audits
At the same time, the IRS is ramping up its auditing efforts, with Werfel noting Thursday that the agency will focus on wealthy individuals and large corporations:
- The IRS plans to triple audit fees for large corporations with assets exceeding $250 million. Audit fees for these companies will increase to 22.6% in fiscal 2026, up from 8.8% in 2019.
- Large partnerships with assets exceeding $10 million will see their audit fees increase 10x, increasing to 1% in fiscal year 2026, up from 0.1% in 2019.
- Wealthy individuals with positive total income greater than $10 million will see their audit fees increase from 50% to 16.5%, up from 11% in 2019.
“There is no new wave of audits coming from low- and middle-income countries [individuals], coming from mother and father. This is not in our plans,” said Werfel.
But by focusing on large corporations, complicated partnerships and wealthy people earning more than $10 million a year, the IRS wants to send a signal, he noted.
“This sets an important tone and message for complex and high-net-worth filers that this is our area of focus,” he said.
The myth of the 87,000 armed IRS agents
The agency also outlined its efforts to bolster hiring thanks to new IRA money. In the mid-1990s, the IRS employed more than 100,000 people, but its workforce had decreased to around 73,000 workers in 2019 due to a wave of reforms and previous funding cuts.
Werfel said the agency recently increased its workforce to about 90,000 full-time equivalent employees and plans to expand to about 102,500 workers in the coming years.
“That number won’t even be a record for the IRS workforce; it is well below the numbers from the 1980s and early 1990s,” Werfel noted.
He added that the hiring data should dispel what he called “any lingering myths about an oversized IRS.” After the passage of the IRA, some Republican legislators notified in 2022 that the agency would use the money to hire “87,000 new IRS agents to audit Walmart shoppers.”
“This should dispel any misconceptions about us bringing in 87,000 agents,” Werfel noted, adding that many of the new hires are replacing retiring employees.
