HomeBusinessIRS goes after millionaires, large corporations that owe millions in back taxes

IRS goes after millionaires, large corporations that owe millions in back taxes

The Internal Revenue Service (IRS) is cracking down on high-income earners and businesses that owe hundreds of millions of dollars in back taxes — “abusing the nation’s tax laws,” the agency said Friday.

Key learning points

  • The IRS is targeting 1,600 taxpayers who earn $1 million or more and owe hundreds of millions of dollars in back taxes.
  • Artificial intelligence and Inflation Reduction Act funding fueled the new campaign to tackle back taxes.
  • Millionaires have historically been audited much less often than low-wage workers.

Under the IRS’s new initiative, the agency plans to contact approximately 1,600 taxpayers who earn $1 million or more and owe hundreds of millions in taxes. The agency plans to use artificial intelligence to examine 75 of the country’s largest partnerships, each with more than $10 billion in assets.

The IRS also plans to use AI to help its compliance teams better detect tax fraud, identify compliance threats and improve audit case selection.

With the new initiative, the IRS aims to “restore fairness to tax compliance” and will review its enforcement efforts, the announcement said. The effort capitalizes on the Inflation Reduction Act, which was signed into law in 2022 and sent more federal funding to the IRS.

“This new compliance push delivers on the Inflation Reduction Act’s promise to ensure the IRS holds our wealthiest filers accountable for paying the full amount of what they owe,” IRS Commissioner Danny Werfel said in a statement . “The years of underfunding that predate the Inflation Reduction Act have led to the lowest audit rate of wealthy filers in our history.”

In fiscal year 2022, the chance of a millionaire being audited by the IRS was 1.1%, according to Syracuse University’s Transactional Records Access Clearinghouse (TRAC). Low-income wage earners taking advantage of the Earned Income Tax Credit (EITC) were more than five times more likely to be audited than other taxpayers.

There are also racial disparities in IRS audits, with Black Americans of all income levels being audited at much higher rates, according to research from Stanford University.

The IRS said its new effort will ensure audit rates don’t increase for taxpayers making less than $400,000 a year, and will add new fairness guarantees for people claiming the EITC, designed to help low-income workers to assist. The IRS acknowledged that ETIC recipients have seen high audit levels recently.

In addition, the IRS said it will focus on ensuring fair audits and protecting taxpayers from scams and will work to increase consumer awareness of these issues.

“The IRS stands on the side of taxpayers, and we will work to protect hardworking people from scammers or fraudsters who try to use the tax system for their schemes, whether it’s promising people inflated EITC amounts or misleading people in tax-related matters. identity theft,” Werfel said.

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