From cleaner energy to lower healthcare costs, the landmark Inflation Reduction Act (IRA) has wide-ranging implications for businesses and consumers alike. But embedded in the language of the bill, too, are provisions related to taxation generally — and IRS enforcement of compliance and audit readiness specifically — that could have important implications for many financial planning and analysis (F&A) leaders.
Here’s a quick rundown of what matters.
zooming in: the IRA and businesses
Bolstering our country’s manufacturing capabilities. Alleviating supply chain woes. Kickstarting R&D for innovation.
It’s easy to like, even to laud, the IRA as a landmark piece of legislation.
But some of the fine print may be worth scrutinizing from a business standpoint, most notably its provisions related to taxation enforcement, which may impact organizational approaches to compliance, audit readiness and more.
Why? For one, the goals of the bill, as laid out in the Democrat’s official fact sheet, include this salient line: “There are… no new taxes on small businesses – we are closing tax loopholes and enforcing the tax code” (emphasis added).
What does this mean, and how will it happen in practice? Are new enforcement mechanisms currently being implemented, or is the agency just shifting its priorities while increasing headcount? Could 87,000 new IRS agents really be about to descend on your QuickBooks, as one Republican lawmaker suggested?
The answer, at least for that last one, is an emphatic “no,” but the others are less simple. The reality is, no one knows how a lot of the details are going to play out at present.
Still, the sheer level of investment that the IRA is channeling to the IRS should be enough to give FP&A leaders pause. Just look at the numbers:
- The bill appropriates nearly $80 billion to enhance the capabilities of the IRS.
- Of that money, the majority, or north of $45 billion, will specifically be directed toward enforcement-related activities.
- In terms of the IRS’s current budget for enforcement, that figure amounts to an increase of 69 percent through year-end 2031.
Of course, it goes without saying that the IRS will likely need some time — years, probably — to fully operationalize that scale of investment. But considering the sheer magnitude of the budgetary increase, together with the stated goals of the bill, it isn’t hard to extrapolate at least two key takeaways for forward-thinking leaders.
zooming out: two key takeaways for F&A leaders
First (and this one should be a no-brainer), there’s simply no way that IRS scrutiny is not about to intensify, so F&A leaders would be wise to start preparing for the inevitable. You’ll need to ensure you’re delivering timely, accurate and transparent documentation around tax positions, because this is coming — probably sooner than you think.
Second, expect to see tremendous ripple effects throughout the talent market, with organizations that put in place strategic plans today standing to risk significantly less exposure tomorrow compared to those that do not. Demand for skilled, experienced and credentialed F&A professionals, who are already in such short supply, is about to go up. And up. And up.
In the interim, whether you’re looking to enhance your core capabilities or bring on short-term talent for projects, it’s probably the right time to find out how partners like Tatum can step in, help you prepare for the future and deliver bottom-line business value. Schedule a meeting with us below today to learn more.
