A better, stronger, faster Internal Revenue Service may soon be tracking down more wealthy tax cheats, thanks to the Inflation Reduction Act (IRA).

The landmark legislation that President Biden signed into law on Aug. 16 includes $80 billion for the IRS over the next 10 years, with more than half of that amount slated for better IRS enforcement.

Proponents say the huge bump in IRS funding will generate an additional $204 billion over that time from otherwise lost tax collection. Opponents say the money will give the IRS cash to harass taxpayers of all income levels and to add 87,000 new tax agents, more personnel than in some national militaries.

The IRS has pledged more scrutiny and enforcement of cryptocurrency transactions and to wage war on America’s $600 billion annual tax gap. (A recent poll showed that more than two-thirds of Americans favor the latter idea.) President Biden has pledged that new enforcement efforts will target large businesses and individual taxpayers making more than $400,000 per year.

An IRS juggernaut would be something relatively new. The Treasury Department said that over the past decade, the IRS has lost 40% of its agents who handle complicated returns of large businesses and corporations and who hunt wealthy tax evaders. The IRS is also coming off years of underfunding; thousands of new hires will increase the agency’s staff only fractionally when figuring in imminent–and major–staff attrition.

Of that $80 billion infusion for the IRS, $25.3 billion is also earmarked for operations support, $4.8 billion for modernizing business systems, and $3.2 billion for taxpayer services.

Treasury Secretary Janet Yellen, who had given the IRS six months to formulate a plan to use the money to better its service but greenlighted some immediate upgrades, suggested that for the coming season, the agency triple the number of taxpayers served at in-person support centers; raise the proportion of callers reaching an IRS employee to more than 4 out of 5 and cut average wait times to less than 15 minutes; automate scanning of millions of individual paper returns; and allow taxpayers to receive and respond to notices online.

Yellen also said the IRS would hire 5,000 customer-service representatives and use private-sector customer service experts to advise on modernization.

“At some point, the IRS will get current with return processing, but until then, it should remain its top priority,” National Taxpayer Advocate Service and Advocate Erin Collins posted on its blog. The TAS has also called for hiring or re-assigning IR staff to process the backlog of paper-filed returns and correspondence; continuing to suspend automated collection notices until the backlog is eliminated; and improving service for tax professionals.

“Poor practitioner service may result in inaccurate filing and inconsistent application of the tax laws,” the TAS added.

Some lawmakers believe improvements should come before any windfall. Sen. Susan Collins (R-ME) and Sen. John Thune (R-SD) have introduced the Increase Reliable Services Now Act, which would stop the IRS from hiring new enforcement employees until the agency hits service targets, including for phone services and return processing.

A Major Tax Law

The IRA made a number of other changes to tax laws. Among them:

• A new corporate alternative minimum tax (AMT) will impose a 15% minimum tax on adjusted financial statement income for applicable corporations with profits in excess of $1 billion.
• Effective for repurchases of stock after this year, an excise tax of 1% is imposed on the fair market value of any stock of a covered corporation that is repurchased during the taxable year.
• Effective for tax years beginning after this Dec. 31, the amount of the research credit that certain small businesses may claim against their payroll tax increases to $500,000.
• The IRC section 45 renewable electricity production credit for qualified renewable electricity production facilities has been extended for three years, through Jan. 1, 2025, for renewable electricity production facilities the construction of which began before then.
• The IRA extends the period for which a taxpayer may claim a credit for the purchase of new clean vehicles purchased after Dec. 31 this year and by Dec. 31, 2032. The definition of a “clean vehicle” has been amended to include new qualified fuel cell motor vehicles and the amount of the credit has been increased for any new qualified plug-in electric drive motor vehicle.

Please note: This content is intended for informational purposes only and is not a replacement for professional accounting or tax preparatory services. Consult your own accounting, tax, and legal professionals for advice related to your individual situation.

Alicea Castellanos, CPA, is the CEO and founder of Global Taxes LLC. Alicea provides personalized U.S. tax advisory and compliance services to high-net-worth families and their advisors. She specializes in U.S. tax planning and compliance for non-U.S. families. In 2021 and 2022, Alicea was the Gold and Silver Winner, respectively, of Citywealth's Powerwomen Awards in the category USA - Woman of the Year - Business Growth (Boutique).