In today’s episode of Adam Talks, Adam Bergman, Esq. discusses the newly released IRS audit data regarding retirement plans.
New IRS Audit Data for 2022 for your IRA/401(k)
In this podcast, tax attorney and founder of IRA Financial, Adam Bergman, discusses the recent IRS audit data for the 2022 tax filing season (for the 2021 taxable year). Bergman reveals that only 112 Solo 401(k) filings were audited in the whole of the United States, making the chance of audit super low. Furthermore, most people invest in traditional investments like stocks, ETFs, and mutual funds, and the IRS knows that 99% of those people are not breaking the rules. Bergman believes that IRA auditing is not a hot area at all, and the chance of audit is super low. Based on the historical data under audit, the IRS knows that most people are not breaking the rules, and they will allocate fewer resources to areas where they’re not going to collect money.
Bergman discusses the audit data released by the IRS for the fiscal year 2020, highlighting the focus on low-income earners. Despite President Biden’s promise that individuals making less than $400,000 will not see an increase in audit risk, most of the in-process audits surround low-income earners. He notes that 42% of the audits are between people who make $25,000 to $100,000, and the largest number of audits are on individuals who make $100,000 to $200,000. The smallest number of audits is on individuals who make over $500,000. Bergman predicts that audit rates will go up for everyone, not just those making over $400,000.
Bergman discusses the number of tax audits being conducted by the Internal Revenue Service (IRS) in the United States. He notes that people who make between $1 and $25,000 file the highest number of returns, with 49 million filed. However, this income bracket also has the highest number of audits in process, with 17,000 currently being conducted. He questions whether it is fair to audit people who make under $25K, and suggests that there are easier ways to determine whether billionaires and real estate developers are paying their fair share of taxes.
Bergman notes that the type of 1040 form and attachments can indicate how sophisticated a tax return is. He states that most of the audits being conducted are for people making under $100K. He does acknowledge that it’s important to ensure that deductions are legitimate and taxes are being paid properly, but argues that the numbers show that most audits are for lower-income individuals.
Based on the historical data under audit, the IRS knows that most people are not breaking the rules, and they will allocate fewer resources to areas where they’re not going to collect money. However, he acknowledges that the IRS needs to make sure people pay their taxes and that fear of enforcement is the only way to do that. Bergman concludes by holding the government accountable and noting that audit rates are not going down for the low-income earners and middle class, despite President Biden’s promises. The numbers show that audit rates are still at a historical low for high net worth individuals.
Overall, Bergman provides an analysis of tax audit data and raise questions about the fairness of auditing lower-income individuals. He also provide some specific data from the IRS website and encourage listeners to explore the data further.
If you want to lean more about the audit data, listen to the whole podcast!
