The Internal Revenue Service is auditing tax returns from higher-income taxpayers much more aggressively than in the past decade, the agency said in a recent report.
For years, the rate at which the IRS audits higher revenues has fallen as the agency’s funding has shrunk. However, this trend has been reversed over the past seven months, the IRS said in a statement issued in an annual report last month.
Between September last year and May, audit rates have doubled “for taxpayers in all income categories above $ 100,000,” the IRS said in a statement.
Audit rates for revenue between $ 100,000 and $ 500,000 have risen to 0.6%, doubling since 2019, the IRS said. Audits for taxpayers earning more than $ 10 million in one year quadrupled to 8%.
No revenue category saw a drop in its audit rate, according to IRS data.
The agency also noted that audits for high-income taxpayers or with complicated returns usually begin more than a year after filing the return. (The law allows you to audit a tax return within three years of its filing).
For example, 2019 returns, which taxpayers had to submit before May 15, 2020, or, with an extension, before October 15, 2020, could be subject to an audit until 2023.
"As new audits of tax returns filed in recent fiscal years open, audit rates for those years will increase," the statement said.
Rooting tax traps among the wealthiest remains a priority for the agency, according to the statement, which states: “Basically, all experienced field income agents focus on high-income people and the its related entities ".
IRS: Smaller workforce
However, there is only so much the IRS can do, as its funding and workforce have declined. Over the past decade, the number of revenue agents, who conduct face-to-face audits, has dropped by 40% to just 8,300.
Lack of resources means that "the levels of execution activity in the high range of distribution, especially for people with a global net worth, large corporations and complex structures such as partnerships, are much lower than in the past. ".
Since the Great Recession, audit rates have been falling sharply, but have fallen more for richer taxpayers, whose statements are often the most complex and may take longer to examine.
Academic research has shown that it is precisely these people who tend to skip paying their fair share. It is estimated that $ 175 billion a year does not pay the top 1% of taxpayers, according to research by Gabriel Zucman and Emmanuel Saez, two leading economists on inequality.
The Treasury estimates that the amount of taxes that the richest people and corporations avoid paying each year is equal to all the taxes that the government collects from the lower 90% of taxpayers.
"We're just overwhelmed," IRS Commissioner Charles Rettig told Congress recently.
The agency has increasingly relied on mail-order audits, which are easier to do but are targeted at low-income people. A March analysis by Syracuse University's Transactional Records Access Clearinghouse found that the IRS audits people who earn less than $ 25,000 a year in five times the rate of all others.
- In:
- internal revenue service
- tax returns
- tax fraud
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