In recent years, the IRS has stepped up its audit activity, focusing more on higher-income taxpayers, especially those earning $400,000 or more annually. This increase is part of a broader federal initiative, launched under the Biden administration, aimed at improving tax compliance and closing the tax gap, the difference between taxes owed and taxes actually paid.
Whether you fall into this category or work with clients who do, it’s important to understand what’s driving these changes, what they mean for you, and how TaxNow can help you stay ahead.
Lenders depend on annual reviews to manage risk and keep businesses in good standing. But the process often involves:After years of declining audit rates for higher-income individuals, the IRS has shifted its focus and resources to increase scrutiny on this group, particularly those earning $400,000 or more. This change stems from a recognition that audits targeting wealthier taxpayers are more likely to uncover significant underreported income, making enforcement efforts more effective in recovering lost revenue.
Wealthier taxpayers typically file more complex tax returns involving multiple income sources, investments, business interests, and deductions. These complexities increase the potential for errors, omissions, or intentional underreporting, which can be challenging for the IRS to detect without closer examination.
By concentrating audits on high-income returns, the IRS aims to address the tax gap more efficiently, ensuring that those with greater financial means are complying fully with tax laws.
An audit can be a stressful experience, even when your tax filings are accurate and thorough. With audit rates rising for high-income taxpayers, it’s more important than ever to be vigilant about record-keeping and filing accuracy. Organized documentation and proactive preparation can make the audit process smoother, helping resolve any IRS questions quickly and minimizing disruptions.
But being prepared isn’t just about having papers in order; it’s also about staying informed and catching potential issues early, before they become bigger problems.
As audits increase, staying informed and organized is critical to managing risk effectively. One of the best ways to do this is by receiving timely alerts that notify you of any IRS activity well before traditional paper notices arrive.
TaxNow provides real-time notifications, including advance audit alerts, that can typically arrive four to six months ahead of a formal IRS examination. This early warning gives taxpayers and tax professionals valuable lead time to gather documentation, seek advice, and respond promptly. Did you know that if you amend a tax return prior to when the IRS initiates an examination, you can mitigate certain penalties that might otherwise be assessed as a result of an audit?
With instant access to detailed IRS tax data and transcripts, users can confidently track their tax status, reduce surprises, and improve communication with their advisors. Whether you’re managing your own taxes or advising clients, leveraging technology like TaxNow helps you work smarter, stay ahead of audits, and navigate the process with greater ease and confidence.
To learn more about how TaxNow’s audit alerts and tax data tools can support you and your clients, book a TaxNowPRO demo today!
