IRS crackdown on millionaire tax dodgers

A yearlong IRS push to recover back taxes from millionaires has yielded more than $1 billion, the U.S. Department of Treasury announced last week, as the agency seeks to crack down on wealthy tax dodgers.

The campaign, targeting taxpayers with more than $1 million in income and tax debts topping $250,000, is part of a broader effort to modernize the IRS and beef up its auditing capacity, propelled by an influx of funding under the Biden administration.

In 2022, the Inflation Reduction Act delivered the agency a historic $80 billion to improve customer service and to boost enforcement of tax laws on the rich and large corporations. But, since then, it has had to contend with congressional Republicans who have prioritized clawing back the money, successfully chipping away at more than a quarter in two years.

“Years of funding declines meant the IRS couldn’t get to money that we knew was owed, but we simply didn’t have the resources or staffing to collect,” IRS Commissioner Danny Werfel said in a press release. “The collection results achieved in less than a year reveal the magnitude of what can be achieved over the long run as our Inflation Reduction enforcement continues to ramp up in the months ahead.”

Werfel said in a press briefing that the agency had grown its enforcement staff, which had helped it track down wealthy taxpayers who owed money, send them letters and even threaten some with additional penalties for failing to pay, according to the New York Times.

“Our message for these taxpayers is that now that we are resourced, we can do the job of ensuring that they pay,” Werfel told reporters.

The IRS has long faced scrutiny over its ability and willingness to audit millionaires and billionaires. Despite President Joe Biden’s pledge to change that, recent ICIJ investigations have shown that the agency has struggled to keep pace with the ever-evolving tax maneuvers of the wealthiest taxpayers who use so-called “large partnerships” — complex webs of entities and trusts — to whittle down their tax bills.

Several current and former IRS agents told ICIJ that the agency’s staff was frequently outmatched in experience and expertise by billionaires’ formidable entourages of hired tax professionals. In June, ICIJ analyzed newly obtained data and found that over the past five years the agency’s Large Business and International Division, which audits corporations and the ultrarich, flagged no more than 22 possible tax crimes — roughly 40 times fewer criminal referrals than from the unit covering small businesses.

In September 2023, the IRS announced its plan to hire thousands of new staff, in part to help improve its auditing of large partnerships. Last month, the agency said it aimed to shut down a tax loophole used by the sprawling corporate structures, allowing Treasury to raise an estimated $50 billion or more in revenue over 10 years.

In the past two years, alongside its moves to recoup tax debt from millionaires, the IRS has sought to make use of its more robust budget to launch initiatives to curb the abuse of corporate jets for personal travel and to audit 76 of the largest partnerships including real estate investment partnerships, hedge funds, large law firms and publicly traded partnerships. Even so, the agency may need to do more to silence its critics. Demian Brady, vice president of research for the National Taxpayers Union Foundation, told the Associated Press that nearly two-thirds of IRS audits in 2023 targeted “those making less than $200,000.”