On August 16th, President Biden signed the Inflation Reduction Act (IRA) into law, and although there were many provisions, there are a few that stand out for business owners. One of which being that there are additional funds for the Internal Revenue Service (IRS). We will explain what this means to taxpayers, specifically ones claiming business tax credits and what they can do to protect themselves from IRS examinations.
Benjamin Franklin famously said “…in this world, nothing is certain except death and taxes.” The IRA bill will try to establish that the second prong of the statement, “taxes,” will be strictly enforced. Over the last decade the IRS has seen its budget and staffing shrink considerably, and with an increase in pandemic-era responsibilities, this has led to a backlog of more than 6 million unprocessed tax returns. To this end, the IRA has appropriated an additional $80 billion of funding for the IRS to be spread out over the next 10 years, with $46 billion allocated specifically to tax compliance and enforcement. Treasury Secretary, Janet Yellen, recently wrote to the IRS commissioner, directing him that the increased IRS enforcement funds should not be used to audit small businesses and individuals with household incomes under $400,000. But what does that mean for medium to large sized businesses?
Medium to large sized businesses should expect to see more IRS examinations in the future as the IRS wrestles with the goal of increasing federal revenues by $204 billion through the next decade. This does not mean it should bring panic upon businesses. It is, however, important that with the renewed scrutiny on tax returns, especially ones that claim valuable business credits and incentives, that businesses make sure they cross their T’s and dot their I’s. Proper substantiation and documentation is the key to successfully defending your tax positions.
Accordingly, during this time of taxpayer uncertainty, you should now more than ever rely on a reputable tax credit and incentives firm to help you navigate the ever-increasing IRS gauntlet. If you are not willing to take on the risks of doing it on your own, our CTI professionals welcome the opportunity to guide you through these unsettling times. For more information on these changes and other tax questions, please consult a CTI tax specialist today.