“Even phased in over a decade, this is a big boost to enforcement,” Service Nation Inc. President Matt Michel said of the added funding.

Michel and Barton James, the president and CEO of ACCA, fear that small businesses, like many HVACR contractors, that are organized as pass-through corporations will face increased pressure from the IRS in the form of audits.

“The owners avoided the worst-case scenario of direct tax increases on their businesses ... but the direct tax was replaced with what is likely to be an indirect tax, by doubling the size of the Internal Revenue Service and stressing enforcement, audits, and examinations over compliance assistance and resolving backlogs,” James said.

“The chances of an audit for small business owners are going up dramatically,” Michel said.

In an August letter to the U.S. Senate, IRS Commissioner Charles Rettig said planned stepped-up enforcement would not be aimed at small businesses and middle-income taxpayers, but at large corporations and high net-worth individuals that “often engage teams of sophisticated representatives who pursue unsettled or sometimes questionable interpretations of tax law.”

James and Michel aren’t buying it.

“Wealthy people, by and large, are not tax cheats,” Michel said. “They employ accountants and lawyers to legally avoid taxes without cheating. The same accountants and lawyers make it harder for the IRS to collect.”

James offered tips for contractors to prepare themselves for increased tax enforcement, saying they should be careful about record-keeping when it comes to deducting business expenses.

“Don’t just record the expense: You must be able to prove it with receipts and demonstrate how it benefits the business,” he said. “Don’t fudge the numbers. The worst thing you can do is send your tax adviser into an audit with nothing to verify the accuracy of the deduction.”

Contractors should also make sure their tax preparers can answer all their questions and know what they’re doing, James said. They should also address any current issues they have with the IRS, he said.

“Assume you’ll be audited,” James said. “If the IRS audits your whole return, what will they find? If there’s something there, address it now so you’ve at least mitigated the risk going forward. Be honest with yourself.”

James also said he was disappointed that a provision that would have restored a lower tax rate for small C-corporations was not in the final version of the IRA. A provision that extended the expiration date of current limits on deductible net business losses ($270,000 for an individual and $540,000 for a couple in 2022) for non-corporate taxpayers could also be of concern to contractors, James said. The limitation was set to expire after 2026; the IRA extended that through 2028.