(Investopedia) - The Internal Revenue Service (IRS) is cracking down on high-income earners and businesses that owe hundreds of millions of dollars in past-due taxes—and in doing so are “abusing the nation’s tax laws," the agency said Friday.
KEY TAKEAWAYS
- The IRS is targeting 1,600 taxpayers who earn $1 million or more and have hundreds of millions of dollars in back taxes due.
- Artificial intelligence and funding from the Inflation Reduction Act fueled the new campaign to crack down on back taxes.
- Millionaires have been far less likely to be audited than low-wage workers in the past.
Among the IRS’s new initiative, the agency plans to contact about 1,600 taxpayers earning $1 million or more who owe hundreds of millions in taxes.1 The agency plans to use artificial intelligence to examine 75 of the country's largest partnerships, each with over $10 billion in assets.
The IRS also plans to leverage AI to help its compliance teams better detect tax cheating, identify compliance threats, and improve audit case selection.
With the new initiative, the IRS is striving to “restore fairness in tax compliance” and will review its enforcement efforts, the announcement said.1 The effort is capitalizing on the Inflation Reduction Act, which was signed into law in 2022 and directed more federal funding to the IRS.
“This new compliance push makes good on the promise of the Inflation Reduction Act to ensure the IRS holds our wealthiest filers accountable to pay the full amount of what they owe,” IRS Commissioner Danny Werfel said in a statement. “The years of underfunding that predated the Inflation Reduction Act led to the lowest audit rate of wealthy filers in our history.”
In fiscal year 2022, the odds of a millionaire being audited by the IRS was 1.1%, according to the Transactional Records Access Clearinghouse (TRAC) at Syracuse University.2 Low-income wage earners who take the Earned Income Tax Credit (EITC) were more than five times more likely to be audited than other taxpayers.
There are also racial disparities in IRS audits, with Black Americans across income levels getting audited at much higher rates, according to Stanford University research.3
The IRS said its new effort will ensure that audit rates don’t increase for taxpayers earning less than $400,000 a year and add new fairness safeguards for people claiming the EITC, designed to help low-income workers. The IRS acknowledged that ETIC recipients have seen high audit levels recently.
Additionally, the IRS said it will focus on ensuring audit fairness and protecting taxpayers from scams and will be working to raise consumer awareness of these issues.
“The IRS is on the side of taxpayers, and we will be working to protect hard-working people from scammers or fraudsters who try to use the tax system for their schemes, whether it's promising people inflated EITC amounts or tricking people into tax-related identity theft," Werfel said.
By Erica Sweeney • Investopedia
