The IRS is planning to ramp up audit rates of wealthy Americans and large corporations as part of its sweeping effort to crack down on tax cheats.
The tax-collecting agency aims to increase the audit rates of taxpayers earning over $10 million by more than 50%. That will bring the audit rate for these individuals to 16.5% in 2026, compared with 10% in 2019.
It also plans to nearly triple audit rates on large corporations with assets over $250 million, as well as increase the audit rates of business partnerships with assets over $10 million by tenfold.
THE IRS IS CRACKING DOWN ON CORPORATE JET USAGE BY WEALTHY AMERICANS, CORPORATIONS
"At the same time, the IRS continues to emphasize the agency will not increase audit rates for small businesses and taxpayers making under $400,000, and those rates remain at historically low levels," the agency said.
Funding for the latest enforcement efforts was included in the Democrats' health care and climate change spending bill – dubbed the Inflation Reduction Act – that President Biden signed into law in 2022. The influx of money is aimed at improving tax compliance among big corporations and wealthy Americans and shrinking the estimated $600 billion tax gap.
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The IRS said it plans to spend $9.3 billion in fiscal 2025, $7.3 billion in fiscal 2026 and a total of $57.82 billion over the decade though fiscal 2031, according to Reuters.
The funding boost for the IRS has elicited fierce pushback from Republicans and other critics who say that a beefed-up IRS amounts to the worst type of government overreach that could ultimately hurt lower-income Americans.
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That's because the IRS disproportionately targets low-income Americans when it conducts tax audits each year. The discrepancy is primarily due to high-income taxpayers having complex investments that can easily shroud the gaps between taxes owed and paid versus taxes reported and paid.
The IRS has repeatedly stated that it will comply with Treasury Secretary Janet Yellen's order to not increase audit rates for Americans who earn less than $400,000 a year – a message the agency reiterated last week when it announced efforts to crack down on 1,600 millionaires and 75 large businesses that it said owed millions in back taxes.
"As I’ve said over and over again, there is no new wave of audits coming for middle- and low-income [taxpayers], coming for mom-and-pops," IRS Commissioner Danny Werfel told reporters Thursday. "That is not in our plans in any way, shape or form."
