With new IRS enforcement underway, high-income individuals and large businesses need to rethink their compliance strategy. There’s a renewed energy at the IRS, and if you’re a business owner or high-income earner, you’re on their radar. The IRS has ramped up enforcement with a focus on high-net-worth individuals, complex partnerships, and large corporations. If you think this doesn’t apply to you, think again.
Over the years, I’ve seen smart business owners get caught off guard by audits—not because they did anything wrong, but because they didn’t plan ahead. Now, with $80 billion in new funding fueling the agency, it’s more important than ever to be proactive.
Here’s what’s happening—and what you should do about it.
Who’s Facing More IRS Scrutiny?
The IRS has made it clear: their focus is on taxpayers earning over $10 million and complex businesses, particularly partnerships and corporations with more than $250 million in assets. Audit rates for these groups are expected to increase significantly over the next few years.
For example:
- High-net-worth individuals: Audit rates are projected to climb to over 16% by 2026.
- Large corporations and complex partnerships: The IRS plans to triple audits on corporations and increase them tenfold for partnerships.
And they’re bringing in artificial intelligence to help them zero in on discrepancies faster. In short: if you’re running a successful business, you’ll want to make sure your financial house is in order.
Why This Isn’t About Small Businesses—For Now
The IRS has been clear they aren’t targeting middle-income earners or mom-and-pop businesses. If your income is under $400,000, or you’re a simple pass-through entity with straightforward filings, you’re not the focus of this initiative.
That said, if your business grows—or you have complex filings, multi-state operations, or foreign holdings—you could easily fall into the category of increased scrutiny.
What Business Owners Should Do Next
There are two types of businesses: those that get ahead of compliance and those that scramble when the audit letter arrives. Let’s aim for the first.
1. Audit-Proof Your Financial Records
Don’t wait until you’re asked. Get your house in order now:
- Ensure you have clean, reconciled financials.
- Document all income sources thoroughly.
- Keep records of partnership agreements and any related-party transactions.
2. Review Complex Structures
If you’re in a complex partnership or have multiple entities, review your organizational chart and tax strategy. Make sure they align with current IRS regulations—and be prepared to explain them.
3. Stay Ahead on Offshore Reporting
If you have foreign accounts or holdings, don’t take chances. Ensure all your disclosures are up to date. This is a hot-button issue for the IRS, and penalties for non-compliance are steep.
4. Voluntary Disclosures and Amended Returns
If you think something might be off in your prior filings, address it now. Voluntary disclosure is almost always a better strategy than waiting for the IRS to find a problem.
The IRS isn’t coming after small business owners with simple tax returns. But if you’re in the high-income or complex partnership camp, now is the time to take action. An audit is disruptive. A well-prepared audit defense plan is smart business.
Want to make sure you’re audit-ready?
Schedule a consultation with Nth Degree CPAs today. We’ll review your current strategy and make sure you’re prepared for what’s next.
