The IRS is often a menace to working men and women. If you own a business or ticked the wrong withholding box, you may be on the tax man’s hook for hundreds or thousands of dollars. But in less than a decade, the tax agency will be turbocharged, and your chance of an audit or penalty will be much higher.
The government announced it wants to boost IRS funding by $80 billion over the next decade to crack tax avoidance from small business owners and wealthy taxpayers. Rapidly advancing technology and the tax agency ahead of the curve in AI could mean the beginning of a closely-monitored and heavily enforced surveillance that will spark more audits for small businesses.
The Future of Tax Audit
IRS plans to digitize tax-processing pipelines and develop government-backed tax filing software. The agency announces that it’ll introduce services that allow taxpayers to complete their returns electronically and access customer service through secure online portals. According to IRS, this new operating plan will eliminate the two-tiered tax system that allows the wealthy and the well-connect to avoid taxes.
Roughly 10% of filers submit hard-copy returns, bogging down the agency with millions of pieces of paper. IRS will spend money to buy more scanning equipment to eliminate the paper backlogs that snarled the previous tax season.
The IRS will hire hundreds of employees in the coming years to undertake the audits and transform the agency’s technology to spot non-compliance better.
IRS Developing Tax Preparation Sofware Might Spike Audits
The agency is exploring the feasibility of developing its tax preparation software. As of today, the IRS drives online filers to private firms such as H&R Block and Intuit TurboTax to file taxes electronically. Nearly 70% of taxpayers qualify for IRS Free File, which directs them to other software programs.
However, the agency will undergo a computing revolution in the next decade. Implementing artificial intelligence will bring changes to IRS record-keeping greater. Since most work will be autonomous, with software that doesn’t need breaks, have no human sympathies, or take holidays, tax enforcement will be grim.
Tax cheats who offshore their funds in secret accounts will no longer keep them. However, the technology will apply to everyone, and IRS will spot any misconduct and use the information to send warnings, penalties, and audit notices. Once the technology is in place, the number of audits will increase 10X.
Who Is More Likely to Face an IRS Audit?
According to IRS, tax audits don’t necessarily suggest a problem. Sometimes the tax agency selects random returns for audit.
However, the IRS has repeatedly emphasized that it wants to increase enforcement activity on high-wealth taxpayers and large corporations instead of households earning less than $400,000 a year. IRS notes that the new reinforcement resources will focus on high-end noncompliance.
Relative to recent years, the audit rates will not rise for households making under $400,000 but for small businesses and high-income earners. However, the technology IRS is adopting would make it less likely to audit compliant taxpayers.
A Tax Attorney Can Help You Pass A Tax Audit
Getting a call for an audit can be nerve-racking for small businesses. If you follow the rules, you shouldn’t be afraid. It’s always about having good record-keeping.
However, if you have received an IRS audit notice and don’t know how to proceed, you can get an attorney to:
- Provide legal advice: the attorney will explain the audit process, your rights, and your obligations and guide you.
- Review your tax returns: the lawyer will examine your tax returns and identify any potential issue that may have triggered the audit.
- Represent you during an audit: the tax attorney can help you prepare necessary documents, respond to IRS questions and requests, and negotiate on your behalf.
If you’re in Georgia, Cumberland Law Group can help you prepare for the audit, reduces penalties, tax liabilities, and other charges, and help you defend your case.