The IRS is making headlines this tax season with its increased focus on tax enforcement. Bolstered by a $60 billion cash infusion, the agency is using cutting-edge technologies, including artificial intelligence, to detect tax cheats and identify compliance loopholes. The goal? To narrow the tax gap, which is the difference between what taxpayers owe and what they actually pay. In this article, we will explore the specific categories of taxpayers that are being targeted by the IRS and the measures being taken to ensure compliance.
One group that is facing the brunt of the IRS’s efforts is taxpayers with high incomes. The agency has prioritized enforcement actions on individuals with total positive income above $1 million and recognized tax debt over $250,000. This taxpayer category has been allocated dozens of agents, and the IRS plans to contact approximately 1,600 taxpayers who owe hundreds of millions of dollars in taxes. IRS Commissioner Danny Werfel has emphasized the importance of addressing the tax revenue lost from this group when the agency was underfunded. With the recent funding boost, the IRS is building capacity to take on higher-income filers and restore balance to the tax system.
However, Werfel and Treasury Secretary Janet Yellen have assured Americans that audit rates for individuals earning less than $400,000 will not rise above historic norms. Despite some skepticism from watchdogs, Werfel maintains that his focus is primarily on high-risk areas such as large corporations, complex partnerships, and millionaires and billionaires.
To further target high-income taxpayers, the IRS has announced four new initiatives. One initiative focuses on U.S. subsidiaries of foreign companies that distribute goods in the United States but do not pay enough tax. Another initiative expands the IRS Large Business & International Division’s Large Corporate Compliance arm to audit an additional 60 big corporations with average assets worth over $24 billion. The third initiative cracks down on abuse of a corporate tax break that was repealed several years ago. Lastly, the IRS is targeting individual taxpayers who make over $1 million in annual income and have over $250,000 in recognized tax debts.
Another group under scrutiny is non-filers earning over $400,000. The IRS has narrowed its focus on 125,000 cases of taxpayers with annual incomes over $400,000 who failed to file tax returns between 2017 and 2021. Approximately 25,000 cases involve taxpayers with incomes over $1 million, while around 100,000 cases pertain to non-filers with incomes between $400,000 and $1 million. The IRS has received information indicating total financial activity of over $100 billion from these taxpayers. The agency will be sending letters to the affected taxpayers and warns of higher penalties and stronger enforcement measures for those who fail to take immediate action.
One surprising group that is getting special attention from the IRS is individuals who use corporate aircraft for both business and personal travel. The agency believes there hasn’t been enough scrutiny in this area and plans to increase its efforts. The tax code allows business deductions for maintaining assets like corporate planes, but personal use of these jets may impact eligibility for certain deductions. The IRS will be using advanced analytics and some of the funding boost to crack down on individuals who fail to categorize these expenses properly.
While the IRS has seen success in collecting taxes through automated processes and aggressive audits, there is still room for improvement. The agency plans to increase its reliance on automated systems to maximize tax collection. Additionally, the IRS will be hiring an additional 3,700 tax enforcers and allocating an extra $46 billion from the recent funding boost to strengthen enforcement efforts.
In conclusion, the IRS’s focus this tax season is on narrowing the tax gap by targeting specific categories of taxpayers. High-income individuals, non-filers earning over $400,000, and individuals using corporate aircraft for both business and personal travel are among those being singled out. With increased funding and advanced technologies, the IRS aims to boost tax revenues and ensure compliance. Taxpayers should be prepared for potential audits and take immediate action if they receive letters from the IRS to avoid penalties and stronger enforcement measures.
