STOP PAYING TAX | New URGENT IRS Rule In 2022

What's up guys? It's Graham here. So, if you pay any amount of tax whatsoever, you're going to want to hear this because there's a chance you're going to owe a lot more money than you initially expected.

That's because the IRS is about to receive an 80 billion dollar injection of funds to increase audit rates, strengthen enforcement, and collect an estimated 200 billion dollars more from taxpayers over these next 10 years. Not to mention, as it stands right now, if you make under 25,000 dollars a year, you're five times more likely to face the IRS than anybody else. And if you make over a hundred thousand dollars a year, well congratulations! Your chance of an audit just doubled.

So, let's talk about exactly what this means, how this is going to affect you, what you could do about it, and then finally how you could use this information to make you money on this episode of "The IRS is Always Watching."

Although before we start, as usual, if you appreciate all the research that goes into making a video like this, it would mean a lot to me if you audited that like button by giving it a gentle tap or subscribing if you haven't done that already.

Alright, so to start, for those unaware of what's going on, we need to talk about the IRS—or if we're really starting off with the basics, the Internal Revenue Service. They're responsible for collecting the money needed to fund the federal government and enforcing tax laws throughout 330 million Americans. But since 2010, those enforcement rates have been declining.

See, the IRS mainly works on a "trust me bro" system, where you file the amount of taxes that you think you owe based on the metrics that they provide. From there, the IRS is able to double-check those informations against their own records to determine if you've paid the correct amount. If you did, you hear nothing back except the faint crying of your bank account and you're free to do it again the next year.

But if you didn't file correctly or the IRS believes that you owe more money than you paid, they'll issue a term that everyone fears more than an out-of-service ice cream machine at McDonald's—and that would be an audit. When this occurs, the IRS has grounds to believe that there's been a mismatch in reporting. They've identified your return as high risk, and they simply want more evidence from you to prove your innocence.

Now, in all fairness, most IRS audits are done over the mail. They're not with any more delicious intent, and they simply want you to pay what you owe. However, there is what's known as a tax gap between what should be owed and what's actually paid, and right now there's 200 billion dollars that's missing.

So, it's the IRS's job to collect more money, and that's where you come in. As it is right now, 57% of Americans paid absolutely no federal income tax whatsoever due to a combination of declining income tax credit, stimulus, and COVID relief funds. But the remaining 43% simply doesn't bring in as much money as they need to, with a deficit that continues to grow.

So, it's only logical that enforcement would begin to increase. Now, you would think that the audit rates would traditionally be the highest among the ultra-rich jet-setting entrepreneurs who write off every lobster dinner at Mastro's as a business expense, but nope! Instead, it's actually the poor. According to IRS data, those with incomes below twenty-five thousand dollars a year have the highest audit rates of just about any bracket.

In fact, that group was audited at the same frequency as the top one percent. So, why is it, you ask? Well, most low-income audits are done by computers, who automatically send out a letter in regards to the earned income tax credit, and everything is handled electronically without the involvement of a skilled employee. So, it's very low effort.

On the other hand, high-income tax returns are often much more complex, involve a team of people, and take specialized knowledge of the tax code to prove any wrongdoing. That's why it's a lot easier to go after the low-hanging automated fruit than prep for a lengthy legal battle with someone who may be over-inflating the value of their painting that was donated to the charity of fine wine for a tax deduction.

The other problem, however, is that flat out, the IRS is broke. Budget cuts, a lack of agents, old technology, and a high volume of tax returns mean that the IRS has fewer resources to go after tax cheats and enforce payments. This leads to unprecedented delays, miscorrespondence, unorganized accounting, and phone wait times that rival that of Space Mountain at Disneyland.

The reality is the IRS has so few staff that only three percent of their calls are answered, and 17 million people are still without their tax refund. But now, with the introduction of the Inflation Relief Act, 80 billion dollars will be funneled back into the IRS for the sole purpose of being able to collect more money.

Of course, anytime the IRS is brought up, you inevitably get people and organizations who claim that income taxes are unconstitutional or that it's voluntary, based on the misrepresentation of how it's worded. But rest assured, every single argument has eventually been rejected, and with 80 billion dollars of fresh funding behind them, they're about to ramp up their operations by a lot and make a lot of money.

That's because a 2013 survey found that the IRS collects six dollars for every one dollar they spent, and once fees and penalties are assessed, it adds up to a lot. For example, most people don't know that the IRS is able to go back three years in the event that they want to audit a tax return, and if they identify a substantial error, they could go back even further—sometimes up to six years.

Now, if you flat out don't file a return, or if your return is fraudulent, then congratulations! There's no time limit, and the IRS is able to go back as far as they want to make sure you pay your fair share.

Now, in terms of penalties, though, here's where things get interesting. On the surface, a three percent interest rate is going to be applied to all unpaid balances until it's paid off in full. But in addition to that, there's also a late payment penalty of half percent each month, up to a maximum of 25%.

In addition to that, if you decide not to file at all, there's a failure to file penalty that's five percent of the amount of tax owed each month—again, up to a maximum of 25%. So, it's quite costly. Although, in terms of these new changes and how this is most likely going to affect you, here's what we know so far.

Alright, now when it comes to this new information under the Inflation Reduction Act, 46 billion dollars is going to be spent hiring more enforcement agents and keeping track of cryptocurrency taxes—which, as CBS explains, is an area that's relatively new to the IRS.

Of course, in a recent statement, Janet Yellen went on record to say that those making under four hundred thousand dollars a year have nothing to worry about, and that new funding will crack down on tax evaders among the wealthy and large corporations, invest in technology upgrades to help taxpayers, and hire more customer support staff to prevent backlogs.

However, others disagree, pointing out that in just this year alone, audit rates have more than doubled for those making above a hundred thousand dollars a year. This suggests that most likely, those making under four hundred thousand dollars a year will be scrutinized at a higher pace by the IRS than we've seen before.

But beyond that, there are plenty of other factors that will increase your chances of IRS scrutiny based on metrics of what they consider normal for your industry.

So, if you're a restaurant owner claiming a large home office deduction, then maybe that's something to look into. Every deduction that you take would be ranked among a panel of similar businesses, and once you fall outside of that threshold, then your chance of an audit increases.

Overall, though, the chance of an audit, at least at today's levels, is still fairly slim, with anywhere from 0.2% to 1% of tax returns being selected, depending on how much money you make—or apparently don't make. But at the core, the problem still stems from a lack of funding, with the IRS currently spending about 14 billion dollars a year.

So, how much of a difference would 80 billion dollars really make? The truth is, it just depends on who you listen to. One side argues that Americans who earn less than 75,000 dollars a year are slated to receive 60% of the additional tax audits, while the other side says that those making under 400,000 dollars a year aren't the target.

Although from everything that I could gather, the truth is probably somewhere in the middle. What we do know is that the bill states it's not intended to increase rates for taxpayers who aren't in the top one percent of earners, even though they could be subject to higher audit rates.

The other thing we know is that IRS funding has declined substantially since 2010, meaning most likely an increased budget is not going to take us above a level that we haven't seen previously. In fact, the Treasury for Tax Policy went on record to say that the proposal would return audit rates to the levels of about 10 years ago.

The rate would rise for all taxpayers, but higher-income taxpayers would face the largest increase in terms of hiring. He then explained that over half of the IRS staff is eligible for retirement in the next five years, and that much of the funding for new employees will be focused on mitigating that attrition and adding customer service.

We also know that roughly 200 billion dollars is uncollected due to non-compliance and the inability to audit wealthy tax returns. So, there needs to be a change somewhere to bring revenue back in line with expectation.

Although in terms of my own thoughts, as well as a realistic view on what's most likely going to happen, here's my unsolicited advice. From my experience, the tax code is so unbelievably complex, and it's a fine balance between collecting revenue while also maximizing compliance.

That just means at what level do people feel more compelled to hide income and cheat the system, and how could that data be realistically used to find a solution so that more people comply? After all, if the tax rate was five percent and the penalty was death, well you bet everyone would pay their taxes.

But if the tax rate was ninety percent and the worst-case scenario is a slap on the wrist, then probably a lot of people would take their chances. So, what does science say? Well, one study in 2008 found that tax cuts can increase tax compliance so much that tax revenues increase in response.

Unfortunately, though, the problem that I see isn't so much with tax rates, because personally I feel like they're pretty fair, but instead the tax code is written so confusingly that only people with money could afford to pay the lawyers and tax professionals to navigate the system as it was designed.

That means that high-income tax returns are nearly impossible to audit because they take way more time and way more resources that could otherwise be spent sending out automatic letters to people who don't have the resources to fight them. In fact, I would love to see the tax system streamlined with fewer complications, similar write-offs, and clear writing so that it's not just left up to someone's interpretation.

It's just too complicated of a system. And if you're self-employed, you almost need a tax professional just to get you through it. In my opinion, I do agree the IRS needs more funding. The fact that hold times could be hours, with most calls going unanswered, should not be happening.

On top of that, they're using outdated technology instead of using the best of the best and resorting to asking me to send a fax like it's 1997. Sure, more and more audits come with the territory, but first and foremost, technology needs to be updated. More staff needs to be present for customer service, and once that's optimized, then sure, tax away.

But we're not there yet. We can only hope that one day the tax system is made much simpler so that people know exactly what they're paying. As far as what you could do about this to make sure you're not a target, the simplest answer is just make over 10 million dollars a year.

Okay, no, I'm just kidding. The best advice is to keep good records, make notes of any business deductions, and hire a professional if you're not sure what you're doing. The IRS is not necessarily something to fear, but the more thorough you are with your bookkeeping, the better you're going to be long-term.

And if you found this helpful in any way, it would mean a lot to me if you subscribed because I post three videos every single week that I would love for you to be a part of. So, with that said, you guys, thank you so much for watching. Also, feel free to add me on Instagram. Thank you again for watching, and until next time.