Millionaires and billionaires in the United States are evading more than $150 billion in taxes each year, contributing to government deficits and creating an unfair tax system, according to the head of the Internal Revenue Service (IRS). In an exclusive interview with CNBC, IRS Commissioner Danny Werfel revealed that the agency has launched several programs to crack down on wealthy taxpayers, partnerships, and large companies in order to combat tax evasion and ensure that everyone pays their fair share.
Werfel attributed the problem of tax evasion by the wealthy to a lack of funding for the IRS over the years. This lack of resources made it increasingly difficult for the agency to conduct audits, especially for complex and sophisticated tax returns that require more resources. In fact, audits of taxpayers earning more than $1 million per year decreased by over 80% in the last decade, while the number of taxpayers with incomes of $1 million increased by 50%.
To address this issue, the IRS has received billions of dollars in new funding from Congress. This funding has allowed the agency to invest in staff, technology, and resources needed to conduct audits, particularly for complex filings. Werfel emphasized the importance of fairness in the tax system, stating that the IRS needs to be equally capable of determining what is owed by both those who can afford an army of lawyers and accountants and those with simpler tax situations.
However, some Republicans in Congress have criticized the IRS’s expanded enforcement efforts, arguing that it will burden small businesses with unnecessary bureaucracy and fruitless investigations. Despite these criticisms, the Treasury Department estimates that greater IRS enforcement could result in an additional $561 billion in tax revenue between 2024 and 2034. The IRS itself claims that for every extra dollar spent on enforcement, it raises about $6 in revenue.
The IRS is already seeing success with its efforts to collect unpaid taxes from millionaires. The agency has identified 1,600 millionaire taxpayers who owe at least $250,000 each in assessed taxes. So far, it has collected over $480 billion from this group. Additionally, the IRS has recently announced a program to audit owners of private jets who may be evading taxes by not properly accounting for their personal use of these planes.
Werfel also highlighted limited partnerships as an area with potential tax evasion. Many wealthy individuals have been using limited partnerships to shift their income and avoid income taxes. To address this issue, the IRS has launched the Large Partnership Compliance program, which examines some of the largest and most complicated partnership returns. It has already initiated examinations of 76 partnerships, including hedge funds, real estate investment partnerships, and large law firms.
The IRS is utilizing artificial intelligence (AI) as part of its enforcement efforts to better identify returns that are likely to contain evasion or errors. AI helps the agency be more precise in identifying high-risk returns while avoiding unnecessary audits for taxpayers who are following the rules.
In conclusion, the IRS is cracking down on tax evasion by millionaires and billionaires in the United States. With increased funding and new programs, the agency aims to ensure that every taxpayer contributes their fair share and to close the tax gap that currently exists. Although there are critics who argue that these enforcement efforts will burden small businesses, the potential increase in tax revenue and the goal of a fairer tax system outweigh these concerns. Through the use of AI and targeted audits, the IRS is making strides towards a more equitable tax system for all.
