IRS Audits Of Millionaires Down 72% In eight Years

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IRS Audits Of Millionaires Down 72% In 8 Years

In fiscal 2020, fewer than two in 100 taxpayers with incomes over $ 1 million were audited by the Internal Revenue Service, according to a new report.

The report released Thursday by Syracuse University’s Transactional Records Access Clearinghouse found that the number of millionaires has nearly doubled since fiscal 2012, but the number of IRS-audited millionaire returns fell 72 percent from 40,965 in fiscal 2012 to just 11,331 in the 2020 financial year.

The report comes at a time when the US is facing growing concerns about income inequality, particularly amid the financial hardship caused by the COVID-19 pandemic. During a Congressional hearing Thursday on the status of this year’s tax returns season, IRS Commissioner Chuck Rettig was interviewed by Legislature on the Subcommittee on Monitoring the Ways and Means of the House on IRS audit rates and whether the IRS should step up enforcement on its persistent budget problems could help.

The TRAC report argues that the government is “slipping” billions of dollars in tax revenue due to budget and staff cuts at the IRS that have prevented it from effectively auditing the 637,212 millionaires living in the US

“Over the past decade, Congress has imposed significant budget and staff cuts on the Internal Revenue Service that have seriously affected the agency’s ability to administer tax laws in a fair and effective manner,” the TRAC report reads. “At the same time, Congress has given the IRS new responsibilities, including managing major changes to tax law and sending repeated rounds of stimulus payments to millions of taxpayers. The final round of $ 1,400 worth of stimulus checks is just rolling out while the IRS is busy with the current tax filing season. “

Of course, Congress has increased funding for the IRS in recent years to implement stimulus packages, the Tax Cut and Jobs Act, and the First Taxpayer Act. Before that, however, the IRS faced a number of budget cuts after a scandal broke out in 2013 over the agency’s apparent targeting of conservative groups. Some of the biggest budget cuts in the last decade have reduced the number of IRS tax advisors, undermining the IRS auditing work as tax advisors are the only auditors supposed to review complex tax returns. Complicated tax returns from both individuals and corporations are typically the types that can earn the most tax revenue from auditing, and fewer tax advisors with the IRS result in fewer audits for wealthy taxpayers and large corporations.

Criticism of the low tax enforcement rate for millionaires and billionaires has increased, as opposed to the audit rate for lower income taxpayers who apply for the earned income tax credit, the audits of which are usually easier to perform as they tend to be more dependent on wage income Contrasted with investment income.

A report by the Treasury Department’s Inspector General for Tax Administration earlier this month found the IRS was unable to collect $ 2.4 billion in tax debt from millionaires who owed taxes (see article).

Back in fiscal 2012, millionaires’ audits found unreported taxes of $ 4.8 billion. With less than a third the number of audits, the IRS exposed only $ 1.2 billion in unreported taxes in fiscal 2020, based on internal government filings received by court order. With 98 percent of millionaires avoiding additional audits, fewer audits are likely to mean that many millionaires have avoided paying billions of dollars to the Treasury Department.

The same pattern applies on the corporate income tax side. Nearly two out of three of the country’s 755 largest corporations – companies with assets of more than $ 20 billion – were not audited last year. As recently as 2012, nearly all of these returns (93 percent) were audited by IRS auditors.

The 2012 IRS audits of corporate giants found unreported taxes of $ 10 billion, but fell more than half in fiscal 2020 to just $ 4.1 billion. Fiscal 2012 audits of these large companies found unreported taxes of $ 24.4 billion – a number that dropped to just $ 5.4 billion in fiscal 2020.