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Has the IRS Stopped Collecting Taxes From High Income Earners?

Has the IRS stopped collecting taxes from high income earners?  Is past performance an indicator of future risk associated with an IRS audit?

A recent Newsweek article flatly stated “The government just admitted it doesn’t really try to collect rich people’s taxes.”  A recent study by Syracuse University researchers showed there has been a 72% drop in the number of IRS audits for those who make more than $1 million annually over the past eight years.  In addition, 98% of those who made more than $1 million dollars did not face an audit last year.

The study went on to note a recent 55% drop in the number of IRS audits for the largest corporations in the United States.

Does this mean the IRS stopped collecting taxes from high income earners and you can stop worrying about an IRS audit?

Just the opposite.  In fact, legislation has already been introduced to increase funding for the IRS specifically to audit and collect tax revenues.

Ask yourself a question: How is the US government going to be able to fund the important initiatives required by the COVID-19 pandemic and the resulting economic challenges facing the US?  Answer: Increase funding to the IRS and go after “uncollected tax revenues.”

The Syracuse University research study concluded: “At a time when Americans face growing economic inequality and financial hardship caused by the COVID-19 pandemic, the IRS is letting billions of dollars in tax revenue slip through its fingers … one area that should not be overlooked is how the nation can better ensure that our income tax laws are fairly and effectively administered.”

The Treasury Department’s inspector general recently concluded “high-income taxpayers are generally not a collection priority, nor is there a strategy in place to address nonpayment by high-income taxpayers.”

While it may appear the IRS stopped collecting taxes from high income earners this is not a time to relax.  Congress members have recently introduced several separate bills intended to boost the enforcement budget of the IRS as well as the capacity to conduct audits.  Some are calling for the specific targeting of high income wage earners, tying funding to the requirement for the IRS to audit “95% of large corporations, 50% of individuals who earn more than $10 million and 20% of those reporting more than $1 million in income.”

Has the IRS stopped collecting taxes from high income earners?  Is past performance an indicator of future risk associated with an IRS audit?  Perhaps the past 8 years have brought fewer IRS audits, but recent events hint to a better funded and more aggressive IRS audit force in the immediate future.  Stay tuned.

If you have been contacted by the IRS, are concerned about an IRS or California tax audit or wish to review strategies to protect your interests and limit exposure we invite you to contact Allen Barron or call 866-631-3470 to schedule a free consultation today.