IRS falls short of policing rich people for tax evasion, watchdog claims

Headquarters of the Internal Revenue Service in Washington, DC

Samuel Corum / Bloomberg via Getty Images

According to the report from the Treasury Inspector General for Tax Administration, the IRS must police wealthy Americans who deliberately evade their income taxes.

About 686,000 taxpayers earning at least $ 200,000 a year, according to the watchdog, had a combined tax balance of $ 38.5 billion.

In addition, the agency collects less than 50% of the tax debt owed by high-income taxpayers within a year of the case being assigned to an IRS tax collector, the report said.

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For example, high earners – those who earn at least $ 1.5 million a year – pay the IRS on average only 39% of the taxes they owe, according to the audit. Such taxpayers still owe about $ 2.4 billion in overriding taxes.

“The compliance of high-income taxpayers can have a significant corrosive effect on the overall tax administration, and also contribute to the belief that the country’s tax system benefits the rich,” according to the Inspector General’s report.

It is important to determine how effectively the IRS tackles tax evasion among the rich, due to the limited staff of experienced tax collectors, the report said.

Eric Hylton, commissioner of the IRS Small Business / Self-Employment Division, said the audit findings were inaccurate and an incomplete version of the facts.

The conclusion that the rich paid an average of 39% of the tax, for example, only reflects what was paid within the first year after cases were awarded to a collection officer, he said.

“Some of these cases are still actively worked out at the end of the analysis period, and the analysis does not follow in all cases,” Hylton wrote. “Therefore, it cannot be used to determine what the IRS is ultimately collecting.”

Tax debt

The IRS does not make taxpayers a high priority when deciding which cases should work, the inspector general’s report reads. The agency attaches greater importance to other factors, such as the amount of the tax balance.

According to the report, tax debt is not always an accurate identifier of the rich. The watchdog, for example, owes the largest number of high-income taxpayers (69%) less than $ 25,000.

“It is reasonable to believe that taxpayers who earn millions of dollars can pay tax debts amounting to a very small fraction of the amount,” the report reads.

Wealthy Americans remain a ‘high priority’ for the agency’s tax collectors, Hylton said.

The IRS is evaluating its predictive models and will continue to assess whether refinements can better target offending taxpayers, he said.

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