IRS releases plan to triple its audit rates on large corporations

Executive summary: The IRS has released its annual update, in which it pledges to triple its audit rates on large corporations.

The update states that the IRS will nearly triple audit rates on large corporations—those with assets over $250 million. The audit rate on such corporations was 8.8% in 2019. Under the plan, the audit rate would be 22.6% by 2026. Audit rates on other large business entities would increase exponentially as well. Large corporations should take note of the IRS’s increased audit focus and document any tax position or corporate transaction that might be questioned upon audit.

On May 2, 2024, the IRS released an update on the Strategic Operating Plan, its blueprint outlining its implementation of the Inflation Reduction Act (IRA). The annual update and accompanying supplement focus on recent and future contemplated changes as a result of the funding provided by the IRA.

Per the updated plan, the IRS will nearly triple audit rates on large corporations—those with assets over $250 million. The audit rate on such corporations was 8.8% in 2019. The IRS plans to increase audit rates on these corporations to 22.6% by 2026.

The updated plan also states the IRS will increase audit rates on large, complex partnerships to 1%, up from a tenth of a percent. The IRS will also increase audits on individuals earning more than $10 million—from a rate of 11% in 2019 to 16.5% in 2026.

Large corporations—as well as other large business entities—should take note of the IRS’s increased audit focus. Due to the increased probability of an audit, we recommend that taxpayers contemporaneously document any tax position or corporate transaction that might be questioned upon audit.

This article was written by Patrick Phillips, Joseph Wiener and originally appeared on 2024-05-03. Reprinted with permission from RSM US LLP.
© 2024 RSM US LLP. All rights reserved. https://rsmus.com/insights/services/business-tax/irs-releases-plan-triple-audit-rates-large-corporations.html

RSM US LLP is a limited liability partnership and the U.S. member firm of RSM International, a global network of independent assurance, tax and consulting firms. The member firms of RSM International collaborate to provide services to global clients, but are separate and distinct legal entities that cannot obligate each other. Each member firm is responsible only for its own acts and omissions, and not those of any other party. Visit rsmus.com/about for more information regarding RSM US LLP and RSM International.

The information contained herein is general in nature and based on authorities that are subject to change. RSM US LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM US LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.