IRS falls short of checking the rich for tax evasion, the watchdog claims

According to a report by the Treasury Inspector General for Tax Administration, the IRS should monitor police for wealthy Americans who are intentionally dodging their income taxes with more force.

About 686,000 taxpayers who earn at least $ 200,000 a year had a combined tax balance of $ 38.5 billion in mid-May 2019, according to the watchdog.

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

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

“Failure to comply with high-income taxpayers can have a significant undermining effect on the general tax administration and also contribute to the belief that the nation’s tax system favors the wealthy,” said the inspector general’s report.

It’s important to determine how effectively the IRS is addressing tax arrears among the wealthy because of the limited workforce of experienced tax collectors, the report said.

Eric Hylton, commissioner of the IRS Small Business / Self-Employed Division, said the audit’s findings are inaccurate and an incomplete representation of the facts.

For example, the conclusion that the wealthy paid an average of 39% of tax due only reflects what was paid in the first year of cases assigned to a debt collection agency, he said.

“Some of these cases were still being actively worked on at the end of the analysis period, and the analysis does not follow the cases in their entirety,” Hylton wrote. “Therefore, it cannot be used to determine what the IRS ultimately collects.”

The IRS does not give taxpayers’ income a high priority in determining which business should work, the inspector general’s report said. The agency places more importance on other factors, such as the dollar amount of the tax balance.

But tax dollars owed aren’t always an accurate identification of the wealthy, according to the report. For example, the largest number of high-income taxpayers (69%) owe less than $ 25,000, the watchdog found.

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

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

The IRS is reviewing and will continue to evaluate its predictive models to assess whether refinements could better target delinquent, high-income taxpayers, he said.