The IRS estimates that wealthy individuals and large businesses evade over $150 billion in taxes yearly. New funding from Congress has enabled the IRS to crack down on wealthy individuals, partnerships, and large corporations. The IRS says that for every extra dollar spent on audits, $6 in revenue is raised.
“When I look at what we call our tax gap, which is the amount of money owed versus what is paid for, millionaires and billionaires that either don’t file or (are) underreporting their income, that’s $150 billion of our tax gap,” IRS Commissioner Danny Werfel said. “There is plenty of work to be done.”
According to Werfel, a lack of funding significantly reduced audits of the most complicated and sophisticated returns. Audits of taxpayers making more than $1 million a year declined by over 80% over the last decade, while the number of taxpayers with income of $1 million has increased by 50%, according to IRS statistics.
“For complex filings, it became increasingly difficult for us to determine what the balance due was,” he said. “So, to ensure fairness, we have to make investments to make sure that whether you’re a complicated filer who can afford to hire an army of lawyers and accountants or a more simple filer who has one income and takes the standard deduction, the IRS is equally able to determine what’s owed. And to us, that’s a fairer system.”
The IRS is hiring skilled accountants to pursue high-wealth individuals, complex partnerships, and large corporations that do not pay taxes owed. Over $482 million was collected from 1,600 millionaires last year.
“The IRS continues to increase scrutiny on high-income taxpayers as we work to reverse the historic low audit rates and limited focus that the wealthiest individuals and organizations faced in the years that predated the Inflation Reduction Act. We are adding staff and technology to ensure that the taxpayers with the highest income, including partnerships, large corporations, and millionaires and billionaires, pay what is legally owed under federal law,” Werfel said.
The IRS has created several programs to target taxpayers with the most complex returns to reduce tax evasion and ensure every taxpayer contributes their fair share. The new programs will improve compliance among high-income individuals, complex partnerships, and large corporations.
The Treasury Department recently estimated that the new IRS programs will result in an additional $561 billion over the next decade.
David Zubler is a nationally known tax accountant and Enrolled Agent who resides in East Tennessee. He is the author of six tax books and a syndicated columnist who has shared tax advice on podcasts and national TV and has been referred to as America’s Tax Guru. He is the founder and president of Your Tax Care. He represents clients nationwide before the IRS and provides tax strategies, and tax education, including David’s one-minute tax tip radio recordings at YourTaxCare.com. David can be reached at (865)363-3019 or by email at david@yourtaxcare.com.
