The Inflation Reduction Act (IRA) gave $45 Billion to the IRS to increase enforcement. The IRA will impact more Americans in poverty than American millionaires.

The IRS can punish taxpayers prior to proving in court their guilt or liability through enforcement actions.

To understand how the IRS can punish suspected taxpayers in noncompliance, we need to define what an Audit is.

Audit= A systematic review or assessment of something.

When most of you think of IRS enforcement you think of an In-Person Audit, led by Revenue Agents.

The IRS also has something called a Correspondence Audit, to be supported by Tax Examiners and that is now the majority of IRS Audits.

A Correspondence Audit, is essentially a letter from the IRS asking for further documentation on a specific line item on a return.

Why is it the majority of all audits? It’s MAJORLY cost efficient at collecting revenue. Full-time IRS Agents utilizing the system, are collecting close to TWO times the revenue field agents collect.

Correspondence audit’s are assisted by data aggregation, comparison and ultimately a computer generated notice is sent. The impact?

Low-income wage earners with less than $25,000 in total gross receipts are now being audited at a rate five times higher than for everyone else.

These individuals don’t have resources. Correspondence audits are not simple. Often, they miss offsetting expenses, with the income in question. Or misunderstanding the type of income obtained. Additionally substantiating Earned Income Tax Credits can be quite complex.

So it’s clear these individuals need assistance. But from who? A poll of #TaxTwitter professionals some of the most up-to date individuals on tax law, conducted by @adammarkowitzEA noted our clients have a median combined household income of $100K-200K.

The impacted individuals can’t afford #TaxTwitter, but at the same time they absolutely need us. Why? We’re professionally trained IRS bomb diffusers…and a correspondence audit is a ticking timebomb for most taxpayers. There’s a due date to respond.

If the IRS does not receive a response by the due date, it typically disallows the item(s) claimed. Shortly after a Notice of Deficiency will be issued, giving the taxpayer just 90 days to petition the United States Tax Court for review.

If no petition is filed, the IRS has legal authority to assess and collect the deficiency

These due dates and the IRS’ legal authority to assess and attempt collecting without possibly even getting in contact with the individual being punished, is a real concern. Why?

1) The letters, are entirely written by an algorithm in which most make little sense. Some may even take official correspondence as being a phishing attempt or a scam letter. Yes, it’s all too common Taxpayers will shred these.

2) The IRS provides only a generic toll-free telephone line to help with their issues. There’s no priority even for those who have a due date to solve their issues.

With #2 at-least they’ll be able to talk to an IRS agent Or will they? Well, turns out that’s also a problem. So much so, tax professionals have been paying hefty monthly fees to have a company call the IRS for them. Why? IRS lines had an answer rate of 10% in 2021.

Is 2022 better? What about today? Well, tax professionals using the practitioner priority line can’t even get an answer depending on the day. We literally receive an automated message stating their staff is at capacity and to try back tomorrow.

So right now no, but there is hope in the amount of around $3 billion dollars out of the $80 Billion approved being dedicated to taxpayer services in the Inflation Reduction Act. A funding amount that is said to possibly bring the answer rate up to 70-80%

The issue so many tax professionals have is funding enforcement at $45 Billion dollars… While the IRS knows their efforts are disproportionately affecting the poorest of the poor, at a time when #inflation is the highest, and these families are trying to get by.

Some will say, these individuals owe the taxes! And yes, that could be the case, but they may never have the chance to prove otherwise because of a convoluted, and complicated system that is being created…

With an environment that is taking professionals who could help them, out of their realm simply by economic and demographic forces. The big one? The AICPA estimates that from the years 2015- 2030 approximately 75 percent of CPAs will retire.

Judging by the actions congress has taken, the amount of taxpayer service we are seeing and whether treasury dictates moves that follow these current trends…. We may all be wishing, everyone had the CHANCE at an in-person audit.

If you need any help regarding these issues Corridor Consulting would love to help, please schedule an individual consultation here. We’re looking forward to opening many more doors for you!

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This article is not professional tax or legal advice for your specific circumstances. Consult with your professional adviser to better understand how these items may impact you, or how they’ve changed