Watchdog questions IRS promise to avoid auditing Americans making over $400,000.
A watchdog report has raised serious concerns about the Internal Revenue Service’s (IRS) ability to effectively target high-income tax evaders while avoiding increased audits on Americans earning over $400,000. The report reveals that the IRS still relies on an outdated $200,000 high-income threshold as its default.
The Treasury Inspector General for Tax Administration (TIGTA), the watchdog overseeing the IRS, recently conducted a review of the agency’s strategy for training employees hired specifically to audit high earners and big businesses that underreport income.
This review comes after the IRS received an $80 billion funding boost, with concerns raised by Republicans that it would lead to increased audits on working-class Americans. However, Treasury Secretary Janet Yellen assured that tax audit rates for individuals earning less than $400,000 would not exceed historical levels.
According to the watchdog’s report titled “The IRS Needs to Leverage the Most Effective Training for Revenue Agents Examining High-Income Taxpayers,” the IRS should utilize the expertise of its Large Business and International (LB&I) division to train newly hired revenue agents in auditing high-income taxpayers.
However, beneath the seemingly innocuous title and recommendation lies a scathing critique of the IRS for lacking a clear definition of “high-income” earners, despite the watchdog’s previous request for the IRS to develop one.
No Clear Definition of ‘High-Income’
The watchdog report highlights that the IRS does not have a unified or updated definition for individual high-income taxpayers. Different IRS programs use varying definitions of “high-income” depending on the context and compliance issues they address.
“The high-income terminology is being used loosely inside the IRS with no common understanding of what the term means,” states the watchdog report.
One of the watchdog’s recommendations is for the IRS to establish a clear definition of high-income taxpayers for examination compliance purposes, with a minimum threshold of $400,000 as directed by the Treasury secretary.
The IRS, however, disagrees with this recommendation, arguing that a rigid definition would hinder their ability to address emerging issues and trends. The watchdog counters that income thresholds should be adjusted based on economic and complexity factors to avoid audits on lower-earning Americans and achieve desired audit coverage.
The watchdog warns that without a clear definition of “high-income,” the IRS would not only conduct more audits on lower-income taxpayers but also be less effective in closing the tax gap.
The Epoch Times reached out to the IRS for comment, but the agency referred to its original justification included in the report.
$200,000 Examination Code Threshold
In addition to the lack of a clear definition, the watchdog criticizes the IRS for still relying on outdated tax examination activity codes established half a century ago. These codes use a $200,000 threshold to identify high-income returns, which is equivalent to over $1 million in 2023.
While the IRS plans to utilize advanced technologies like data analytics and artificial intelligence to improve its understanding of high-income individuals’ tax filings, the report raises concerns about the agency’s outdated practices.
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