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.