The Internal Revenue Service IRS announced on Friday that it has successfully secured $160 million in overdue taxes for the current year, with a specific focus on high-earning individuals. This initiative was bolstered by additional federal resources, a part of last year’s Inflation Reduction Act championed by Democrats. This has been a point of contention for Republicans, questioning the allocation of funds to the IRS, creating uncertainty about future financial support.
This past September, the IRS initiated action against approximately 1,600 taxpayers, each with incomes exceeding $1 million and accumulated tax debts over $250,000. Out of these, 100 cases have been resolved, bringing in $122 million. Earlier in the year, the IRS had already recovered $38 million from other high-income taxpayers, totaling the collections to $160 million for the year.
IRS’s Aggressive Push Recovering $160 Million and Closing the Tax Gap
IRS Commissioner Danny Werfel, during a media interaction, emphasized the significance of this campaign. “Based on the recoveries we’ve made so far, it’s evident that this initiative is crucial for us,” he remarked. One notable case highlighted an individual who was directed to repay over $15 million after improperly claiming personal expenses, such as building a luxurious mansion and buying high-end cars, as deductible business costs.
Another taxpayer admitted to submitting incorrect tax documents and diverting upwards of $670,000 from their enterprise, with significant amounts being squandered on personal and gambling expenses.
The IRS’s intensified enforcement is geared towards narrowing the “tax gap”, which represents the discrepancy between owed taxes and the amount actually collected promptly. Recent data indicates a staggering $688 billion went uncollected for the 2021 tax year.
The IRS is also setting its sights on major corporations, especially US branches of international firms that may not be paying their fair share on profits from their US sales. Beginning next month, around 150 such subsidiaries will receive notices emphasizing their tax duties in the US and urging them to rectify any discrepancies. With the induction of new accountants in 2024, the IRS will launch 60 in-depth audits on some of the biggest corporate taxpayers. These audits will leverage both artificial intelligence and expert judgment to identify potential tax evasion, ensuring the auditing process is efficient.
The Inflation Reduction Act’s allocation of $80 billion over a deca
Revamping the IRS
de to the IRS has paved the way for the agency’s comprehensive transformation. This involves recruiting, tech upgrades, refining taxpayer services, and tackling tax evasion. Due to this funding, the IRS has been able to enhance its customer service, notably reducing phone waiting times. A project, termed Direct File, is in the works to offer a complimentary tax filing service, set for a preliminary roll-out next year. Additionally, there’s an ambition to convert all manually filed tax returns to digital format by 2025, aiming to streamline processes and expedite refunds.
However, this substantial financial boost to the IRS hasn’t been without its critics. GOP members have voiced concerns about the possibility of increased audits for the general populace. A compromise was reached earlier this year, where $20 billion of the allocated funds was redirected in a bipartisan agreement concerning the debt ceiling. The Biden administration has countered these concerns, stating that the budget adjustment won’t derail the IRS’s future plans and reassured that individuals earning below $400,000 annually wouldn’t experience a surge in audits due to this funding.