Treasury: $1B Past-Due Tax Debt Collected From High Earners So Far

The Treasury Department and the IRS announced that it has collected $1 billion from “high-income, high-wealth” individuals through an enforcement initiative launched last year.

Treasury said in a July 11 press release (unavailable to the public at the time of writing) that reaching this “major milestone” was “made possible” by Inflation Reduction Act (PL 117-169) funds. The campaign prioritizes recouping past-due tax debts owed by taxpayers with incomes over $1 million and recognized tax debts exceeding $250,000. Of the 1,600 cases, over 1,500 were assigned to senior personnel.

Before the enactment of the Inflation Reduction Act, “more than a decade of budget cuts prevented the IRS from keeping pace with increasing complexity and ensuring that wealthy taxpayers, large corporations, and complex partnerships pay taxes owed under current law,” read the release.

The initiative began with 175 wealthy individuals, from whom the IRS collected $38 million. Seeing this as “an initial success,” the effort was expanded last fall. It is one of several ongoing compliance enforcement initiatives funded by the 2022 bill. Other activities include those targeting corporate jet abuse, high-income nonfilers, and large corporations and partnerships with average assets of $24 billion and $10 billion, respectively.

“President Biden’s Inflation Reduction Act is increasing tax fairness and ensuring that all wealthy taxpayers pay the taxes they owe, just like working families do,” said Treasury Secretary Janet Yellen.

Speaking with reporters on a press call Thursday, IRS Commissioner Danny Werfel said that in some cases, the IRS receives an “immediate response” to the first notice letters it sends out as part of the initiative. A taxpayer may agree to remit payments without additional correspondence. Sometimes, though, there is “extensive back and forth and follow-up” between the taxpayer and the agency. Werfel said levees can be introduced when there is pushback.

When the IRS does not meet its mandate to enforce tax laws, he later commented, an “atmosphere” is created “where an increasing number of people believe that they can not file or not pay their taxes with no consequences.”

He stressed that the IRS aims to only conduct audits of taxpayers in situations where it firmly believes the outcome will result in tax owed. “Our goal is always to eliminate the risk of a zero-balance-due audit,” said the commissioner. Implementing artificial intelligence, data scientists, and subject matter experts will help reduce the amount of so-called no-change audits, the agency believes.

“And if we send in a team that’s too small to absorb the complexity” of a taxpayer’s “financial environment, we’re going to miss things and we’re not going to be as thorough as we can,” Werfel continued.

The IRS’ hiring spree since the Inflation Reduction Act has brought on a variety of new staff, including customer service representatives, revenue agents, and, notably, accountants. Those with accounting skills are needed at the IRS to ensure caseworkers are accurately calculating deficiencies, as well as any applicable penalties or interest.

When the agency hires the right experts, it recovers “more owed taxes than what we need to pay these employees to keep them onboard,” said Werfel.