IRS ramping up crackdown on wealthy taxpayers, targeting 1,600 millionaires

The IRS said Friday it is ramping up a crackdown on wealthy taxpayers who owe back taxes, noting that the effort springs from billions in new funding through the Inflation Reduction Act partially designed to help it track down millionaire tax cheats. 

The agency will begin by pursuing 1,600 millionaires who owe at least $250,000 each in overdue taxes, the IRS said in a statement. The agency announced it will have "dozens of revenue officers" focusing on high-end collections cases in fiscal-year 2024, which starts in October and ends in September 2024. 

The 2022 Inflation Reduction Act directed $80 billion to the IRS, with more than half of that earmarked for more enforcement agents. The idea is to generate more tax revenue for the nation's coffers by zeroing in on wealthy taxpayers who hide or underreport their income. Because of their legal complexity and costs, such tactics are far less common among people who are less well off because their income is reported to the IRS on W2s and other tax forms. 

"If you pay your taxes on time it should be particularly frustrating when you see that wealthy filers are not," IRS Commissioner Danny Werfel told reporters in a call previewing the announcement. 

The IRS will also heighten its scrutiny of 75 large business partnerships that have assets of at least $10 billion on average. In addition the dedicated agents, the agency said it plans to use artificial intelligence to track tax cheats. 

Audit rates and underfunding

At the same time, the IRS reiterated that it doesn't intend to increase audit rates for people earning less than $400,000 a year. Some Republican lawmakers and right-leaning policy experts have raised concerns that the new IRS funding would be used to go after middle-income workers.

Audit rates have dropped precipitously in recent decades due to the IRS' shrinking workforce. The agency employed 82,000 workers in fiscal-year 2021, down from 94,000 workers in 2010, even as the U.S. population and number of taxpayers has grown over the same period. 

The number of people with incomes of $1 million has jumped 50% over the last decade, but the number of audits on million-dollar tax returns has fallen by two-thirds. 

"The years of underfunding that predated the Inflation Reduction Act led to the lowest audit rate of wealthy filers in our history," Werfel said Friday in a statement.

A team of academic economists and IRS researchers in 2021 found that the top 1% of U.S. income earners fail to report more than 20% of their earnings to the IRS.

—With reporting by the Associated Press.

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