IRS Increasing Audits for Wealthy Individuals and Businesses by 2026

The Inflation Reduction Act of 2022 allocated more than $45 billion for tax enforcement. After a decade of decreasing numbers of audits, the trend is reversing.

The IRS anticipates increasing audits by tax year 2026. Likely prospects typically include high-income taxpayers, self-employed individuals, business owners, estates, large and complex corporations, and large partnerships.

The IRS plans to increase audit rates by more than 50% on wealthy individual taxpayers with total positive income over $10 million, with audit rates going from an 11% coverage rate in 2019 to 16.5% in tax year 2026.

It plans to triple audit rates on large corporations with assets over $250 million to 22.6% in tax year 2026, up from 8.8% in tax year 2019.

According to the Annual Update of the IRS Strategic Operating Plan released this past April, it “opened examinations of 76 of the largest partnerships in the U.S., representing a cross section of industries including hedge funds, real estate investment partnerships, publicly traded partnerships, large law firms and other industries.” It expects audit rates for this group to increase from 0.1% in 2019 to 1% in tax year 2026.

What types of events could trigger a closer look by an IRS auditor?

• Taxes not being withheld from non-wage income such as capital gains, dividends, interest, rental income, and royalties
• Failure to file taxes or failure to pay recognized tax debt
• Large variances year-to-year in personal income
• Consistent business losses over many years
• Unusually large charitable deductions, improper home-office expenses, and losses on a rental property
• Undervalued assets
• Personal use of business aircrafts used by large corporations, large partnerships, and high-income taxpayers

One bright spot: small businesses and households earning less than $400,000 annually will not see increases in audit rates compared to historical levels, according to the IRS.

If you find yourself or your business the recipient of a notice about an audit, contact your Weiss accountant. We’ll be with you every step of the way.