The Inflation Reduction Act of 2022 (IRA ’22) is 750-plus pages of tax and spending legislation designed to tackle everything from climate change to the runaway costs of prescription medication. It contains tax credits for clean energy, nuclear power production, electric vehicles, and other technologies intended to fuel the transition to a lower carbon economy.

It also seeks to reduce health insurance premiums for 13 million low- and middle-income Americans and imposes a $2,000 per year cap on out-of-pocket medicine costs under Medicare Part D. And it establishes a new 15 percent minimum tax on the “book income” of large corporations.

Oh, and if you believe the stated intent, it provides about $80 billion in new funding to the IRS over the next 10 years that is not exclusively for increased tax enforcement. More on this below.

We covered many of the provisions of the new legislation, which the President signed into law on Aug. 16, 2022, in the first three parts of this four-part series:

• Part 1: The Clean Vehicle Tax Credit
• Part 2: Energy Efficiency Credits and Rebates for Residents and Owners of Residential Property
• Part 3: Tax Implications for Businesses and Corporations

Today’s Part 4 of this series covers additional provisions in the IRA ’22 that apply to increased IRS funding, drug pricing, and Affordable Care Act insurance premiums.

Increased IRS Funding

The Internal Revenue Service (IRS) has been underfunded for years. You may have experienced the ramifications of this underfunding if you ever tried to contact the IRS with a question or concern. But the lack of funding has also impaired the IRS’s ability to conduct audits and collect unpaid taxes.

The Inflation Reduction Act of 2022 provides an additional $80 billion to the IRS over 10 years to improve customer services and expand its enforcement and compliance efforts. The Congressional Budget Office estimates that these investments will raise an additional $124 billion from increased collections over a 10-year period.

Perhaps the most controversial aspect of this increased funding is what the IRS plans to do with it — hire and train up to 87,000 new IRS agents. While U.S. Secretary of the Treasury Janet Yellen has indicated that the additional funds will not be used to increase audits of people earning less than $400,000, it would be foolish to believe that such an increase in enforcement efforts would not be used to target regular, everyday taxpayers.

Warning: As soon as the IRS uses the increased funding to become fully staffed, we are confident that it will expand its enforcement efforts to small businesses and households making less than $400,000 per year.

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