HomePrivate WealthIRS Ramps Up Crackdown On Millionaire Tax Cheats

IRS Ramps Up Crackdown On Millionaire Tax Cheats

The Internal Revenue Service says it has launched a sweeping effort to restore fairness to the tax system, including going after 1,600 millionaires and 75 large business partnerships that owe hundreds of millions of dollars in past due taxes.

The agency said the new effort is building off work following the Inflation Reduction Act funding it received last August and “will center on adding more attention on wealthy, partnerships and other high earners that have seen sharp drops in audit rates for these taxpayer segments during the past decade.”

IRS compliance teams, it said, are equipped with new improved technology including AI tools that will help to better detect tax cheating, identify emerging compliance threats and improve case selection tools to avoid burdening taxpayers with needless ‘no-change’ audits.”

“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 Friday press release. “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,” he added.

The $1.7 trillion Inflation Reduction Act of 2022 increased the IRS budget by about $80 billion over the next10 years for expansion and modernization efforts. More than half of the amount was intended to beef up enforcement of the agency’s auditing of companies and individuals who make more than $400,000 annually.

But the funding was trimmed by $1.4 million as part of the debt ceiling and budget cuts package passed by Congress this summer. The White House has said an agreement with House Speaker Kevin McCarthy (R-Calif.) calls for another $20 billion to be repurposed over the next two years to other non-defense programs.

In July, the agency reported that services had dramatically improved and that it had so far recovered $38 million from more than 175 high-income earners in past months.

The IRS said the 1,600 millionaires who will be contacted by the agency owe at least $250,000 each in back taxes and the 75 large business partnerships that includes hedge funds, real estate investment partnerships, publicly traded partnerships, large law firms and other industries, each have on average assets of more than $10 billion.

The agency said it also will mail compliance letters, beginning in October, to 500 partnerships with more than $10 million in an effort to address discrepancies on balance sheets, which it said has been increasing over the years. “Taxpayers filing partnership returns are showing discrepancies in the millions of dollars between end-of-year balances compared to the beginning balances the following year,” the agency said. “Many of these taxpayers are not attaching required statements explaining the difference. This effort will focus on high-risk large partnerships to quickly address the balance sheet discrepancy.”

Other key areas the agency said it will prioritize in the next year include expanding its compliance work on digital asset transactions and targeting and auditing high-income taxpayers who continue to use foreign bank accounts to dodge filing and paying taxes.

Additionally, the agency said it will step up its efforts against “unscrupulous tax preparers” who exploit people claiming tax credits such as the Earned Income Tax Credit, which  was designed to help workers with modest incomes. Audit rates, it noted, “remain at high levels in recent years while rates dropped precipitously for those with higher income, partnerships and others with more complex tax situations.”

“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.”


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