The Internal Revenue Service released new framework on who it intends to target with audits, claiming to shift focus away from working-class to wealthy taxpayers.
The IRS said the new framework will "restore fairness in tax compliance" as it tries to rebuild its ranks of agents that had dwindled over the years. Last year, Congress passed the Inflation Reduction Act (IRA), which provided $80 billion to help hire additional staff. Of that, the Congressional Budget Office estimates that $60 billion will be spent on enforcement.
Some lawmakers have suggested that the IRS would use more staffing to increase audits of those making under $400,000, despite assurances from the White House that it would not. Instead, the White House said hiring increases were needed at the IRS to replenish dwindling staffing levels.
The new guidance calls on agents to focus their work on taxpayers who make over $1 million in income and have collected $250,000 in tax debt.
“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,” said IRS Commissioner Danny Werfel. “The years of underfunding that predated the Inflation Reduction Act led to the lowest audit rate of wealthy filers in our history. I am committed to reversing this trend, making sure that new funding will mean more effective compliance efforts on the wealthy, while middle- and low-income filers will continue to see no change in historically low pre-IRA audit rates for years to come.”
The IRS hopes to go paperless by 2025 filing tax season
The IRS receives about 76 million paper tax returns and forms and 125 million pieces of correspondence a year.
Additionally, the IRS said it is expanding its Large Partnership Compliance program by opening examinations of 75 of the largest partnerships in the U.S. The IRS said these partnerships each have at least $10 billion in assets.
With added staff, the IRS said it intends to be more aggressive in warning of scams and schemes targeting taxpayers. The IRS said fraudsters exploit people claiming the Earned Income Tax Credit. The IRS added that audit rates among those claiming the EITC remain at high levels while audit rates of wealthy taxpayers have fallen.
“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. “Protecting hard-working taxpayers is a critical component to ensuring the success of the nation’s tax system, and the IRS will be working throughout the fall and into the 2024 filing season to take steps to help people.”
There is evidence that targeting wealthier taxpayers provides a better return for the IRS. According to an analysis released in July by the National Bureau of Economic Research, $1 spent auditing taxpayers above the 90th income percentile yields more than $12 in revenue. The research firm said that each $1 spent on audits of below-median income taxpayers yields $5.
