On May 2, 2024, the Internal Revenue Service (IRS) announced an update to its Strategic Operating Plan (SOP). Initially introduced in 2023, the SOP outlines new IRS goals and priorities, including modernization and enhancements to tax enforcement activities. The new SOP update suggests the IRS will receive more funding for staffing, customer service, and enforcement capabilities, boosting its capacity to conduct IRS audits.
Although the IRS expects to increase the number of audits it can perform, the SOP update is primarily aimed at improving taxpayer services and expanding audits for wealthy individuals, large corporations, and complex partnerships.
Learn what the changes mean for you and how Windes can help you prepare.
Increased Capacity Means More Audits by the IRS
The IRS was allocated $80 billion in funding under the 2022 Inflation Reduction Act to revitalize the agency and increase its service and enforcement capabilities. The IRS expects to use the new funds to complete these objectives:
- Hiring additional staff. The tax agency has vowed to hire new personnel and bolster a workforce that has been dwindling since 2019 following a wave of retirements and funding cuts.
- Modernizing operations. The IRS will allocate part of the funds to implement the latest technology and analytics systems, which will allow IRS personnel to better serve taxpayers and process taxpayer information more efficiently.
- Reforming enforcement. The IRS expects to refresh its hiring and training processes, simplify its notice system, and provide more digital tax forms. The agency categorized training and staffing for large and complex partnerships as critical, indicating an increased focus on high earners.
Expected Audit Targets in 2026
Due to the increased focus on high-earning entities and wealthy individuals, the IRS noted that high-earning corporations and partnerships should expect a higher chance of being audited by 2026. The anticipated increase in audit rates varies from 50% to 1,000% or more, depending on the type of entity audited:
- Large corporations. The IRS intends to increase audit rates for large corporations with assets over $250 million from 8.8% in 2019 to 22.6% in 2026.
- Large partnerships. Complex partnerships with assets over $10 million should also expect more audits. The IRS expects to increase the audit rate for these entities from 0.1% in 2019 to 1% in 2026.
- Wealthy individuals. Individual taxpayers with a total positive income of $10 million or more should expect more audits. The SOP plan update intends to increase these audit rates by 50%, from 11% in 2019 to 16.5% in 2026.
What These IRS Audit Changes May Mean for You
If you are a taxpayer subject to expanded audits, you should consider the following implications on how you manage your finances:
- Increased scrutiny. Anticipate deeper examinations of your financial statements and tax returns. This heightened scrutiny will require improved documentation and reporting precision to withstand regulatory review.
- Higher compliance efforts. You may need to prepare for more frequent and detailed government audits. Engaging a CPA firm to perform independent financial statement audits, reviews, and compilation services may improve financial transparency, internal controls, and compliance with required accounting standards.
- Greater transparency. The demand for higher transparency will necessitate changes in managing and disclosing financial information. You may need to improve internal communication and external reporting practices to meet these new standards.
- Strategic adjustments. The increased audit rates could expose vulnerabilities in your current tax strategies. You must carefully review and possibly overhaul your tax planning and compliance procedures to ensure they fully comply with updated IRS regulations.
How to Mitigate Audit Risks for Your Business
A few strategic actions can safeguard your private business from audit risks. Take the following steps to improve compliance and readiness for IRS scrutiny:
- Regular internal audits. Periodic, comprehensive internal audits should detect and rectify errors before filing tax forms. Integrating a proactive approach to tax accuracy can help ensure your internal controls are efficient and reduce the risk of being flagged by the IRS.
- Efficient recordkeeping. Ensure your organization maintains detailed and properly organized financial reports. The latest document management technologies can help streamline your recordkeeping capabilities, and business process outsourcing services can ensure that your financial statements are current and accurate while you focus on running your business.
- Staff training and education. Provide up-to-date, comprehensive training to staff members assigned to tax compliance, record management, and internal controls. Ensuring they remain on top of the latest tax laws and IRS updates will give them the tools to keep your business compliant.
- Contact accounting and tax professionals. Accounting professionals can review your accounting practices and tax returns to provide advice that will help you be prepared to face government examinations.
Comprehensive Accounting Services from Windes
Windes offers comprehensive accounting solutions that can serve you and your business. Our services include:
- Audit and Assurance. Our Audit and Assurance team has experience performing all levels of independent financial statement reports in numerous sectors and industries, from manufacturing businesses to healthcare, energy, transportation, distribution, and real estate.
- Use of the latest technologies. At Windes, we use the latest business insights, analytics tools, and technological solutions to maximize the accuracy and validity of your records. Our accounting professionals combine their years of experience to find the best solutions for your business.
- Tax Advisory. With ever-changing tax laws and regulations, our team maintains dialogue and communication to proactively address potential issues and opportunities for you and your business.
Work With Windes to Minimize IRS Audit Issues
New IRS audit changes can mean more oversight and increased audit risk for your business. Get your company ready for potential audits with our comprehensive accounting services. We can review your current financial processes, bolster recordkeeping and tax compliance, and ensure that if an audit happens, it goes as smoothly as possible. Connect with Windes today for assistance with IRS audit preparation.