|(04 Jan 2023)
Former President Trump was not alone in having returns he filed while he was President allegedly escape detailed scrutiny by the Internal Revenue Service (IRS). Last year IRS revenue agents were only able to audit a small number of millionaire returns. Indeed, during FY 2022, the odds a millionaire was audited by an IRS revenue agent was just 1.1 percent.
In place of face-to-face audits, IRS has increasingly relied on highly automated processes to send letters through the mail (a "correspondence audit") asking for more documentation on a specific item. In FY 2022, 85 per cent of what IRS counts as audits of 1040 returns were these letters. Even for millionaires the IRS has turned to these. Last year about half (48%) of millionaire audits consisted of these simple letter inquiries. Even so that still left somewhat under 700,000 millionaires — taxpayers reporting a million or more in total positive income — with absolutely no scrutiny whatsoever.
Most taxpayers had lower audit rates last year than millionaires. However, there was one exception. These were low-income wage-earners taking the earned income tax credit. This anti-poverty credit is provided to offset the taxes for the lowest wage-earners in the country. The odds of audit was 1.27% for these lowest income families who reported total gross receipts of less than $25,000.
If one ignores the fiction of auditing a millionaire through simply sending a letter through the mail, the odds that millionaires received a regular audit by a revenue agent (1.1%) was actually less than the audit rate of these targeted lowest income wage-earners. Should these low-income families be the ones targeted when millionaires are responsible dollarwise for most tax underreporting?
Congress passed in a party line vote an unprecedented infusion of new funding — some $80 billion — for the Internal Revenue Service with much of it targeted for beefed up tax enforcement. While ostensibly aimed to go after "wealthy Americans [and] corporate scofflaws," critics ask: what is to stop the agency with this army of new IRS agents from instead going after middle-class taxpayers?
Answering this question remains a key challenge that Danny Werfel faces if confirmed as the new IRS Commissioner. One of his first orders of business should be lifting the secrecy curtain about basic figures on which taxpayer groups are being audited that had descended under former IRS Commissioner Rettig. Werfel needs to put in its place a full and detailed transparency program to keep the public informed on how these new funds are being applied in the selection of taxpayers for stepped up audits.
For more details on IRS audit rates for FY 2022 gleaned from internal IRS management reports obtained by TRAC at Syracuse University after successful litigation under the Freedom of Information Act read the full report at:
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