The Biden administration has trumpeted its plans to crack down on rich tax evaders, funneling $46 billion to the IRS so it can ferret out money hidden by the ultra-wealthy.
For now, though, the chances of a high income earner being audited by the IRS remain vanishingly low. A new report released by the Transactional Records Access Clearinghouse at Syracuse University found that a millionaire’s chances of coming face-to-face with an auditor fell in 2022 to just 1.1%.
Although IRS enforcement agents devote a quarter of their time to auditing millionaires, nearly 700,000 millionaires face “no scrutiny whatsoever,” the group found.
The IRS was slightly more active with audits by mail — instances in which the agency asks for additional information on certain items in a person’s tax return. Some 85% of all audits, and just under half of millionaire audits, were done by mail, TRAC found. Still, it called this form of enforcement a “fiction.”
The number of millionaire tax returns the IRS audits every year has fallen from nearly 41,000 a decade ago to just 16,800 in 2022, with the pace of enforcement slowing as the agency lost funding and personnel.
“Severe budget cutbacks over the years meant that the IRS has examined fewer and fewer millionaire returns,” TRAC said.
While the number of millionaire audits rose modestly from 2020 to 2022, the rate stayed low because the number of high-income tax returns also grew in that time.
In 2022, 703,000 tax returns were filed reporting an income of at least $1 million, IRS figures show.
“Easy marks”
One group that hasn’t benefited from the shrinking IRS are lower-income taxpayers. Those who earn less than $25,000 and qualify for the Earned Income Tax Credit are audited at five times the rate of everyone else, TRAC found. In fiscal year 2022, nearly 1.3% of these tax returns were subject to an in-person or mail audit.
By comparison, the average audit rate for all tax returns was just 0.4% last year.
“[T]his group of taxpayers have historically been targeted not because they account for the most tax under-reporting, but because they are easy marks in an era when IRS increasingly relies upon correspondence audits yet doesn’t have the resources to assist taxpayers or answer their questions,” TRAC concluded.
“While these small differences may sound trivial, the difference represented tens of thousands of low-income families,” the report said.
The Biden administration has promised to crack down on ultra-wealthy tax evaders, while vowing that audit rates remain level for anyone making under $400,000 a year. The IRS released data last year showing that it has stepped up audits of the highest earners, with a particular focus on those making $5 million or more.
Still, the recent funding boost for the IRS in the Inflation Reduction Act has led some Republicans to claim the agency is raising a “new army” of tax collectors to harass middle-income workers. While these are partisan claims meant to discredit the IRS, TRAC notes that the agency’s own record in this area leaves it open to criticism.
Under former Commissioner Charles Rettig, whose tenure marked the increased audits of low-income Americans, recently leaving the agency, TRAC is calling on the IRS to create “a full and detailed transparency program.” Americans deserve to know “how these new funds are being applied in the selection of taxpayers for stepped up audits,” the report said.
