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The number of audits of Americans earning more than $1 million a year has fallen sharply over the last several years, according to a new report from researchers at Syracuse University. Yet, tax evasion is far more common among higher earners.
Why it matters: The report is another sign of how the chronically underfunded IRS is "in crisis," as we reported earlier this year.
The U.S. loses $1 trillion in unpaid taxes annually, according to a statement last spring from IRS commissioner Charles Rettig.
The unpaid taxes are mostly a result of tax evasion by the wealthy and big companies, he said.
Most workers pay up: Roughly 99% of taxes owed on wages are paid to the IRS, a report from the Treasury noted last year.
Details: Of 617,505 returns filed by those making over $1 million last year, about 14,000, or 2%, were audited, according to the agency’s data analyzed by the Transactional Records Access Clearinghouse at Syracuse.
That's down from more than 40,000, or 12% of the million-plus group, in 2012. The million-plus audit rate should be far higher, said Susan Long, a statistician who worked on the report. “Why is it so low? That is where the big tax gap is. It’s not the little guy.”
Meanwhile: Last year, the IRS audited 1.3% of the tax returns filed by those earning less than $25,000 a year, the report finds.
Just .45% of returns filed by those earning $200,000 to $1 million were audited.
The backstory: If you earn less than $25,000 a year, you don’t owe income taxes — you typically qualify for the Earned Income Tax Credit (EITC), a rebate that keeps millions of families out of poverty each year.
These audits are theoretically meant to ensure no one is tricking the system.
The Trac report says that these audits are cheaper to conduct — less experienced workers administer them largely through the mail — and therefore more common.
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