FINANCE
How did the IRS get back $1 billion and how much more can it collect?
You may have heard of the Inflation Reduction Act but were you aware of just how effective it would be at bringing in owed debts from the rich?
The IRS’s aggressive new strategies to increase audits and recover overdue taxes from high-income individuals and corporations have led to a significant milestone: the collection of over $1 billion. Surely that’s an initiative that the whole country – apart from those citizens trying to avoid paying their dues, maybe – can get behind.
The U.S. Department of the Treasury and the IRS recently announced a major achievement in their efforts to tackle tax evasion among the wealthy. Thanks to the Inflation Reduction Act, which infused the agency with fresh resources, the IRS has successfully reclaimed more than $1 billion in overdue taxes, and the reaction on social media was, on the whole hugely positive. This crackdown targets high-income, high-wealth individuals – specifically those earning over $1 million and owing more than $250,000 in tax debts.
What changes are being made by the IRS?
It was always going to be ambitious, as the IRS plans to significantly enhance its auditing capabilities over the next few years. The Act has allocated $60 billion to the IRS, part of which will enable the agency to modernize its outdated systems and increase taxpayer services. For fiscal 2024 alone, the IRS intends to spend $7.25 billion, a substantial increase from $3.4 billion in 2023.
The IRS’s updated strategy includes a sharp increase in audit rates for entities and individuals with substantial assets and incomes:
- Corporations with assets over $250 million will see their audit rates nearly triple, from 8.8% in 2019 to an anticipated 22.6% by 2026.
- High-wealth individuals with incomes over $10 million are set to experience a 50% hike in audit rates, up to 16.5%.
- Audit rates for complex partnerships with assets over $10 million will rise dramatically—from 0.1% to 1%.
Who is the IRS not targeting in tax audit?
Notably, the IRS has reassured that audit rates for individuals and small businesses making less than $400,000 will not increase, aligning with President Biden’s commitment to not raise taxes on this demographic.
With plans to employ over 93,000 personnel by 2028 and increase enforcement staff significantly in the next fiscal year, the IRS is gearing up for a major expansion of its capabilities. This ramp-up suggests that the agency is not only reclaiming past-due taxes but is also setting the stage for more robust tax collection efforts in the future.
Despite these advances, the IRS’s increased funding and enforcement have sparked controversy. Republicans have criticised the increased spending as overreach, leading to a reduction of $20 billion in the initially approved funds. Yet, the IRS’s recent successes may strengthen the case for its expanded role in ensuring tax compliance.