The headquarters of the Internal Revenue Service in Washington, DC
Samuel Corum / Bloomberg via Getty Images
The IRS must police wealthy Americans who intentionally avoid their income taxes more vigorously, according to a report by the Inspector General of the Treasury for Tax Administration.
About 686,000 taxpayers who earn at least $ 200,000 a year had a combined tax balance of $ 38.5 billion in mid-May 2019, according to the watchdog.
In addition, the agency charges less than 50% of the tax debt owed by high-income taxpayers within a year after the case is assigned to an IRS tax collector, the report said.
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For example, those who earn a lot – those who earn at least $ 1.5 million a year – pay the IRS only 39% of taxes due, on average, according to the audit. These taxpayers still owed about $ 2.4 billion in defaults.
“Non-compliance by the high-income taxpayer can have a significant corrosive effect on the general tax administration, as well as increase the belief that the country’s tax system favors the wealthy,” according to the Inspector General’s report.
It is important to determine how effectively the IRS is handling defaulting taxes among the wealthy due to its limited number of experienced tax collectors, the report said.
Eric Hylton, commissioner of the IRS Small Business / Self-Employed Division, said the audit findings are inaccurate and an incomplete representation of the facts.
For example, the conclusion that the rich pay 39% of the tax due, on average, reflects only what was paid in the first year of cases being attributed to a collection officer, he said.
“Some of these cases were still being worked on actively at the end of the analysis period, and the analysis does not follow the cases in their entirety,” wrote Hylton. “Therefore, it cannot be used to determine what the IRS ultimately collects.”
Tax debts
The IRS does not make taxpayer income a high priority when determining which cases to work in, said the Inspector General’s report. The agency attaches greater importance to other factors, such as the dollar amount of the tax balance.
But tax money owed is not always an accurate identifier for the rich, according to the report. For example, the largest number of high-income taxpayers (69%) owe less than $ 25,000, the watchdog discovered.
“It is reasonable to believe that taxpayers who earn millions of dollars can pay tax debts that amount to a very small fraction of that amount,” the report said.
Rich Americans remain a “high priority” for the agency’s tax collectors, Hylton said.
The IRS evaluates and will continue to evaluate its predictive models to judge whether refinements could better reach defaulting high-income taxpayers, he said.