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IRS coming after high-income earning Americans for tax evasion

The Internal Revenue Service (IRS) has reaffirmed its commitment to targeting “high-income individuals evading taxes.” Recent enforcement actions have enabled the IRS to recover $38 million from tax-delinquent wealthy taxpayers, according to a July 14 statement.

The IRS stated, “The IRS is working to ensure [that] high-income filers pay the taxes they owe. Prior to the Inflation Reduction Act (IRA), more than a decade of budget cuts prevented IRS from keeping pace with the increasingly complicated set of tools that the wealthiest taxpayers use to hide their income and evade paying their share.”

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IRS Cracks down on wealthy tax evaders for prosecutions, investigations

Currently, the IRS is acting decisively to rectify this imbalance. In recent months, the Criminal Investigation team has prosecuted numerous wealthy taxpayers for tax evasion, money laundering, and filing false tax returns, collecting millions in restitution.

The IRS has recently resolved roughly 175 tax delinquency cases involving millionaires and pledged to continue such efforts with increased enforcement capabilities under the IRA.

The agency also revealed investigations into about 100 high-income individuals living in Puerto Rico to exploit tax breaks and potential misuse of Washington’s treaty with Malta to claim tax exemptions.

IRS commissioner vows to hold wealthy taxpayers accountable

“The IRS of today is laser-focused on holding our highest-wealth filers, millionaires and billionaires, accountable for what they owe,” IRS Commissioner Danny Werfel told reporters.

The IRA, passed in August 2022, allocated $80 billion over ten years to enhance enforcement and improve IRS operations. However, some funds were retracted in a debt ceiling deal between Republicans and Democrats.

Criticism of the IRS has centered on the perception of disproportionately targeting low-income families.

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Records reveal IRS higher audit rates for low-income earners

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Data from Syracuse University’s Transactional Records Access Clearinghouse (TRAC) reveals significantly higher audit rates for low-income wage earners, who receive the earned income tax credit, than for other groups.

The IRS audit rate per 1,000 in fiscal 2022 was 12.7 for the lowest income earners, while for others, it was just 2.3. National Taxpayer Advocate Erin M. Collins highlighted in a 2021 report to Congress that over half of the taxpayers audited by IRS correspondence in fiscal 2019 earned less than $50,000.

Low-income wage earners: IRS ‘easy marks’

TRAC noted that the IRS increasingly uses correspondence audits due to resource constraints. It targets low-income wage earners not because they contribute the most to tax under-reporting but because they are “easy marks.”

The number of audits for millionaire taxpayers has significantly decreased over the last decade.

Critics of the Democrat-backed IRA suggest it may shift the IRS’s tax focus to the middle and lower-income classes.

Bill to protect lower earners rejected by Democrats

Before passing the bill, an amendment proposed by Sen. Mike Crapo (R-Idaho) aimed to protect those earning under $400,000 annually from the new IRS funding; it was rejected by all 50 Democrat senators.

In a letter, Treasury Secretary Janet Yellen instructed the then-IRS Commissioner Charles P. Rettig that the new funding should not increase the proportion of small businesses or households below the $400,000 threshold audited relative to historical levels.

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Yellen’s IRS directive raises enforcement concerns

However, as Yellen’s directive lacks legal force, Preston Brashers, a senior tax policy analyst with The Heritage Foundation, commented, “This has no teeth behind it.”

Rep. Kevin Brady (R-Texas) estimated the spending measure could lead to 1.2 million new taxpayer audits annually, with over 710,000 targeting Americans earning $75,000 or less.

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