Summary of Inflation Reduction Act
As of Sunday 8/7/2022 the Senate Democrats on Sunday passed their climate, health and tax package, which includes $80 billion in funding for the Internal Revenue Service.
$79.6 billion will be allocated to the agency over the next ten years as part of the Inflation Reduction Act. More than half of the funds has been cited to be used for enforcement.
The remainder of the funding, according to the legislation, is supposed to be spent on operations, taxpayer services, technology, and the development of a direct free e-file system. Together, these technical processes and enforcements are projected to bring in $203.7 billion of revenue from 2022 to 2031, according to recent estimates from the Congressional Budget Office.
According to a May 2022 report from the Government Accountability Office, IRS investigations have dropped by almost half, over the last decade, with the wealthiest individuals accounting for the majority of those losses.
According to the report, fewer than 2% of individuals earning more than $5 million in 2019 were audited, compared to 16% in 2010. The agency said it is committed to increasing these rates.
However, if the Inflation Reduction Act is passed by the House and signed into law, it will take time to implement the additional IRS funding, according to Tax Foundation, senior policy analyst, Garrett Watson. The Congressional Budget Office only predicts about $3 billion of the $203.7 billion in revenue in 2023.
IRS: We won’t boost ‘audit scrutiny’ on the middle class
While advocates welcome the increased IRS budget, others argue that enhanced enforcement may have a broader impact than merely wealthy persons, in violation of Biden’s $400,000 promise.
“My colleagues claim this massive funding boost will allow the IRS to go after millionaires, billionaires and so-called rich ‘tax cheats,’ but the reality is a significant portion raised from their IRS funding bloat would come from taxpayers with income below $400,000,” Sen. Mike Crapo, R-Idaho, ranking member of the Senate Finance Committee, said in a statement.
The IRS announced that the $80 billion in funding would not be used to increase audits of incomes lower than $400,000 families.
“The resources in the reconciliation package will get us back to historical norms in areas of challenge for the agency — large corporate and global high-net-worth taxpayers,” he wrote in a letter to the Senate.
“These resources are absolutely not about increasing audit scrutiny on small businesses or middle-income Americans,” he added.
According to a poll conducted by the University of Maryland in 2021, more than two-thirds of registered voters want to increase the IRS budget in order to combat tax evasion.
If you have any questions about how this event can effect Real Estate Investment tax strategy you should also speak with a Real Estate specialized tax strategist.
Most businesses have a bookkeeper and/ or an accountant. They are both important when it comes to keeping records and filing taxes for a business, however, it would behoove you to have a Tax Strategist on board as well to help you when it comes to knowing all the ins and outs of stretching and saving money.
Jose A. Ramirez is an experienced tax strategist who helps small business owners in the Real Estate industry, including those in the activity of Short-Term Rental such as AirBNB and VRBO, Landlords, Wholesalers, Rehabbers, Flippers, Real Estate Brokers and Realtors. Schedule an appointment with Jose A. Ramirez for any additional questions you may have about this recent event. Make sure you are subscribed to the Advanced Tax Advisors email list so you can receive current events just like this in the future.
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