IRS Plans to Reduce Audit Rate for Low-Income Taxpayers, Increase Scrutiny on Wealthier and Corporate Taxpayers, US

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The Internal Revenue Service (IRS) has announced plans to reduce its audit rate for low-income taxpayers while increasing scrutiny on wealthier individuals and corporate taxpayers. The move is part of a rebalancing effort aimed at improving tax administration and addressing racial disparities in audit selection.

In a letter to Senate Finance Committee chairman Ron Wyden, IRS Commissioner Daniel Werfel outlined the agency’s strategy for fiscal year 2024. Werfel stated that the IRS will significantly reduce the number of correspondence audits focused on refundable tax credits, such as the Earned Income Tax Credit (EITC), American Opportunity Tax Credit, Health Insurance Premium Tax Credit, and Additional Child Tax Credit. The goal is to decrease over-reliance on audits to resolve basic errors, ensuring that eligible taxpayers receive the credits and deductions they are entitled to.

Furthermore, the IRS aims to address racial disparities in its audit rates. A recent study found that Black taxpayers are audited at 2.9 to 4.7 times the rate of non-Black taxpayers, largely due to automated algorithms that flag discrepancies in claims for tax credits. To rectify this, the IRS plans to redeploy compliance resources and focus on other pressing priorities instead of disproportionately auditing low-income individuals.

This announcement comes on the heels of the IRS’s plan to increase audits on large partnerships, big corporations, and high-income taxpayers. Leveraging artificial intelligence for audits and utilizing additional funding from the Inflation Reduction Act, the IRS aims to improve tax compliance among high-wealth tax evaders and large, complex partnerships.

The IRS’s decision to rebalance its compliance initiatives has been met with praise from lawmakers. Senator Ron Wyden commended the agency for focusing on lower-income taxpayers’ mistakes while cracking down on wealthy tax cheats. He highlighted the importance of eliminating racial disparities in audit selection methods. Similarly, Representative Richard Neal applauded the IRS’s commitment to equity and its efforts to hold the wealthy and well-connected accountable.

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Despite the positive reception, there are ongoing concerns about cybersecurity weaknesses at the IRS. A recent report by the Government Accountability Office (GAO) found longstanding vulnerabilities in the agency’s cybersecurity measures. The report highlighted the IRS’s failure to implement multiple GAO recommendations for safeguarding taxpayer information, including high-priority recommendations that would significantly improve data protection. Senate Republicans raised these concerns, emphasizing the need for the IRS to prioritize addressing security weaknesses and improving customer service.

As the IRS moves forward with its plans to rebalance its audit rates and improve tax administration, it will face scrutiny regarding its cybersecurity measures. However, the agency’s efforts to focus on aiding low-income taxpayers and targeting high-wealth individuals and corporations are seen as positive steps towards achieving equitable and efficient tax administration.

Frequently Asked Questions (FAQs) Related to the Above News

Why is the IRS planning to reduce its audit rate for low-income taxpayers?

The IRS is aiming to reduce its audit rate for low-income taxpayers to address racial disparities in audit selection and to ensure that eligible taxpayers receive the credits and deductions they are entitled to without relying heavily on audits to resolve basic errors.

Which tax credits will the IRS focus less on auditing?

The IRS will significantly reduce the number of correspondence audits focused on refundable tax credits such as the Earned Income Tax Credit (EITC), American Opportunity Tax Credit, Health Insurance Premium Tax Credit, and Additional Child Tax Credit.

What steps will the IRS take to address racial disparities in audit rates?

The IRS plans to redeploy compliance resources and focus on other priorities instead of disproportionately auditing low-income individuals, thereby aiming to rectify the racial disparities in audit rates.

Who will face increased scrutiny in audits according to the IRS's plan?

The IRS plans to increase audits on large partnerships, big corporations, and high-income taxpayers as part of their rebalancing effort.

How will the IRS improve tax compliance among high-wealth tax evaders and large, complex partnerships?

The IRS will leverage artificial intelligence for audits and utilize additional funding from the Inflation Reduction Act to enhance tax compliance among high-wealth tax evaders and large partnerships.

What has been the reaction from lawmakers regarding the IRS's decision to rebalance its compliance initiatives?

Lawmakers, including Senator Ron Wyden and Representative Richard Neal, have praised the IRS's decision. They have commended the agency for focusing on lower-income taxpayers' mistakes while cracking down on wealthy tax cheats and eliminating racial disparities in audit selection methods.

What concerns have been raised regarding the IRS's cybersecurity measures?

Concerns have been raised about longstanding vulnerabilities in the IRS's cybersecurity measures. A recent report by the Government Accountability Office (GAO) highlighted the IRS's failure to implement multiple GAO recommendations for safeguarding taxpayer information, raising concerns about data protection and the need for the IRS to prioritize addressing security weaknesses.

What are Senate Republicans emphasizing regarding the IRS's cybersecurity weaknesses?

Senate Republicans are emphasizing the need for the IRS to prioritize addressing its cybersecurity weaknesses and improving customer service to safeguard taxpayer information and enhance data protection.

In summary, what are the key goals of the IRS's plan?

The key goals of the IRS's plan are to reduce audit rates for low-income taxpayers, address racial disparities in audit selection, increase scrutiny on high-wealth individuals and corporations, leverage artificial intelligence for audits, and improve tax compliance.

Please note that the FAQs provided on this page are based on the news article published. While we strive to provide accurate and up-to-date information, it is always recommended to consult relevant authorities or professionals before making any decisions or taking action based on the FAQs or the news article.

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