The IRS announced Friday that it is cracking down on affluent individuals who owe past taxes, using billions in extra cash from the Inflation Reduction Act to help it find them.
IRS Logo: IRS on dealing with individual millionaires with unpaid taxes. (Source: CPA Practice Advisor)
IRS Will Strictly Deal with Individuals Owing $250,000 Above Unpaid Taxes
The IRS claimed it would start with 1,600 millionaires who owe at least $250,000 in back taxes. The agency will have “dozens of revenue officers” working on high-end collections cases in fiscal year 2024, which runs from October to September. The 2022 Inflation Reduction Act gave the IRS $80 billion, with over half going to additional enforcement. Targeting rich taxpayers who hide or underreport their income is intended to boost tax revenue. Because W2s and other tax forms report income to the IRS, such strategies are rare among the poor due to their legal complexity and cost.
According to IRS Commissioner Danny Werfel told reporters by phone before the announcement that if you pay your taxes on time it should be particularly frustrating when you see that wealthy filers are not doing the same. The IRS will also scrutinize 75 major corporate partnerships with average assets of $10 billion. In addition to dedicated agents, the agency wants to track tax fraudsters via AI.
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Tax Return Audits Have Decreased
The IRS also emphasized that it won’t increase audit rates for anyone earning less than $400,000. Republican lawmakers and right-leaning policy experts worry the extra IRS budget will target middle-income employees. Due to IRS staff reductions, audit rates have plummeted in recent decades. The agency had 82,000 employees in fiscal year 2021, down from 94,000 in 2010, despite a growing U.S. population and taxes.
The number of millionaires has climbed by 50% in the last decade, while tax return audits have decreased by two-thirds. Werfel stated that prior to the Inflation Reduction Act, years of underfunding resulted in the lowest audit rate of wealthy filers in our history. Academic economists and IRS analysts concluded in 2021 that the top 1% of income earners in the United States fail to declare more than 20% of their earnings.
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