Reaffirming commitments made when the IRS received an $80 billion appropriation one year ago from the Inflation Reduction Act (PL 117-169), the agency announced a shift of enforcement resources away from those making under $400,000 a year to wealthy taxpayers, corporations, partnerships, and promotors of abusive tax schemes. (IR-2023-166)
Throughout last summer, the Treasury Department and IRS repeated the message that a freshly funded IRS won’t audit “working-class taxpayers” above historical levels, instead focusing on going after sources of the largest amounts of uncollected revenue to close the tax gap. In a September 8 release, the agency announced it has since conducted a “top-to-bottom” review of its enforcement activities and will now use new tech, including advanced artificial intelligence tools, to target high earners and better protect earned income tax credit (EITC) claimants against unfair scrutiny, as well as victims of scams and identity theft.
“The years of underfunding that predated the Inflation Reduction Act led to the lowest audit rate of wealthy filers in our history,” said IRS Commissioner Danny Werfel. “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 that it is “critical” for the IRS to address “fundamental gaps in tax compliance that have grown during the last decade,” with more details on the horizon in the coming weeks and months.
Based on Friday’s release, the IRS’ current “major expansion” enforcement projects include:
- Contacting taxpayers with incomes above $1 million and over $250,000 in recognized tax debt, especially the 1,600 that owe “hundreds of millions of dollars in taxes.”
- Using AI to open examinations of the 75 largest partnerships in the country that have, on average, have more than $10 billion in assets each.
- Issuing compliance letters to “high risk partnerships” with over $10 million in assets beginning in October with 500 taxpayers.
Other priority areas the IRS identified will be addressed in fiscal year 2024, such as digital assets, Foreign Bank and Financial Accounts violations, and a scheme involving construction contractors making Form 1099-MISC/1099-NEC payments to “shell” companies.
“There is a sea change taking place at the IRS in every aspect of our operations,” said Werfel. “Anchored by a deep respect for taxpayer rights, the IRS is deploying new resources towards cutting-edge technology to improve our visibility on where the wealthy shield their income and focus staff attention on the areas of greatest abuse.”
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