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News: 2020 IRS Audit Numbers Down, Except in This One Group

IRS staffing issues continue to impact tax return audits as they fell again in 2020. Here’s what that means to you.

Justin Cupler

Contributing Writer at Tally

August 13, 2021

Part of President Biden’s plans to support the many initiatives he’s proposed is to increase tax revenues by bolstering the Internal Revenue Service (IRS). The plan includes adding $80 billion to the IRS over a decade to help it perform more audits and enhance compliance from wealthy taxpayers. 

None of this proposal has received approval yet, and the result is another drop in audits in the past tax year. For the 2020 tax year, the IRS completed just 509,917 audits, which brought in an additional $12.9 billion. This was down from the 2019 tax year, which saw 771,000 audits bring in an additional $17 billion. 

Audits are down, but per-audit revenues are up

If the IRS wants to make more revenue, its trend is headed in the wrong direction. But the IRS is attempting to adjust course by shifting its limited resources to high-income taxpayers in 2020, according to IRS Commissioner Charles Rettig. The hope is by focusing on higher incomes, the IRS can capture more unpaid taxes per audit. 

This shift is evident in the numbers: The 2020 tax year saw 10,890 concluded audits of tax returns worth at least $1 million. That’s a significant spike compared to 2018 when the IRS audited just 889 tax returns worth over $1 million. 

And if you do the math, the IRS proved that a shift in focus would drive revenues. In 2019, the IRS captured $22,049 per audit ($17 billion ÷ 771,000 audits). In 2020, the IRS captured $25,298 per audit ($12.9 billion ÷ 509,917) — an increase of $3,249 per audit just by shifting its focus to millionaire filings. 

So, what does this mean for the average American? For the most part, it’s business as usual for most taxpayers. For wealthy taxpayers who file million-dollar tax returns, though, this means the IRS realizes where the revenue is and will focus its limited resources on these high earners. 

What’s more, this is without President Biden’s additional funding. With the $80 billion in extra funds over a decade, the IRS can hire additional employees to complete more audits on higher-income tax returns. This could lead to more careful tax filings from wealthy taxpayers to avoid costly and stressful audits. 

Ambitious initiatives may get the funding they need

If the $80 billion in funding helps close the IRS’ tax revenue gaps, which could be around $1 trillion, according to previous comments from Rettig, many of President Biden’s ambitious initiatives could get the funding they need.  

These initiatives include free community college, Pell Grant increases, funding for preschools, recruiting teachers, child care cost reductions, nutritional assistance for kids and more. Most of these initiatives target underserved communities.

With a lot of this extra revenue coming from existing taxes owed, this could mitigate the need to raise taxes to support President Biden’s initiatives, which is a frequent sticking point on both sides of the aisle. The IRS proved it could add revenue just by with its new auditing strategy, and this might be enough to garner bipartisan support for Biden’s goal of injecting $80 billion into the organization.