IRS Collects $160 Million From Wealthy Taxpayers in Latest Compliance Effort

The taxpayers are part of a group of high-income earners which the agency has targeted for owing hundreds of millions in back taxes.
IRS Collects $160 Million From Wealthy Taxpayers in Latest Compliance Effort
A sign outside the IRS building in Washington on May 4, 2021. Patrick Semansky/AP Photo
Naveen Athrappully
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The IRS collected $160 million as part of its increased compliance efforts targeting wealthy taxpayers as concerns mount that such efforts could eventually target small-business owners.

Earlier this year, the IRS collected $38 million from more than 175 high-income earners. On Oct. 20, the agency announced it had collected $122 million from 100 more high-income earners, taking the total tax collected from taxpayers to $160 million, according to a statement. The 100 taxpayers are part of the 1,600 new high-income earners the IRS is contacting who “owe hundreds of millions of dollars in taxes.”

The IRS cited three cases of such taxpayers. One taxpayer who owed taxes was ordered to pay more than $15 million last month. He had falsified millions of dollars of personal expenses as deductible business expenses. This falsified amount was used to fund the construction of a 51,000-square-foot mansion, including an outdoor pool and pool house and tennis, basketball, and bocce courts. The taxpayer also falsified millions of dollars of expenses for luxury vehicles, country club memberships, artwork, and homes for his children.

Another individual recently pleaded guilty to filing false tax returns and skimmed more than $670,000 from his business, according to the agency. The individual also spent $502,000 on gambling and $110,000 on personal expenses.

A third individual fraudulently obtained $5 million in COVID-19 relief loans for a sham business and then spent the money to fulfill personal needs, buying multiple cars, including a Lamborghini and a Ferrari. This person was sentenced to 54 months in federal prison.

The IRS credited these tax collection efforts to funding from the Inflation Reduction Act (IRA), which was enacted last year. The IRA had initially set aside $80 billion for the IRS, an amount later reduced to $60 billion.

“Prior to the Inflation Reduction Act, more than a decade of budget cuts prevented the IRS from keeping pace with the increasingly complicated set of tools that the wealthiest taxpayers use to hide their income and evade paying their share,“ the tax agency said. ”The IRS is now taking swift and aggressive action to close this gap.”

Although the IRS claims that its increased tax compliance and enforcement actions are aimed at making wealthy taxpayers pay their due share, Sen. Joni Ernst (R-Iowa) has questioned such claims.

In an April 18 letter to IRS Commissioner Daniel Werfel, for example, Ms. Ernst pointed out that the IRA funding over 10 years was aimed to “enhance collections efforts toward American taxpayers and increase the IRS workforce to over 105,000 employees by 2025.”

“President Biden has repeatedly stated that these efforts would be directed to ‘billionaires’ and wealthy taxpayers,” she wrote.

“However, the strategic plan states in Part II, Objective 3.5 that IRS will pursue increased audit rates of any business earning more than $400,000 to enhance collections efforts towards large corporations and wealthy individuals.”

It cited data from the Statistics of U.S. Businesses under the U.S. Census Bureau that showed that the average small business employing about five workers had annual receipts of more than $424,000.

“It is abundantly clear that small businesses will bear the brunt of these enforcement efforts, not solely large corporations and the wealthiest taxpayers,” she wrote.

IRS Compliance Efforts

Earlier this month, the IRS insisted on strengthening compliance efforts by pointing to the burgeoning tax gap—the difference between what is owed and what is actually paid to the government.

For tax year 2020, the IRS estimates the gap to be $601 billion. For 2021, it is estimated to be $688 billion, which is “a significant jump” from previous estimates, the IRS stated. The 2021 tax gap is $192 billion more than estimates from 2014 to 2016 and $138 billion more than 2017–2019.

Tax forms from previous years are displayed at Latino Taxes in Oakland, Calif., on April 10, 2007. (Justin Sullivan/Getty Images)
Tax forms from previous years are displayed at Latino Taxes in Oakland, Calif., on April 10, 2007. Justin Sullivan/Getty Images

“This increase in the tax gap underscores the importance of increased IRS compliance efforts in key areas,” Mr. Werfel said. “With the help of Inflation Reduction Act funding, we are adding focus and resources to areas of compliance concern, including high-income and high-wealth individuals, partnerships, and corporations.”

In an Aug. 16 statement, the IRS stated it was cracking down on schemes that wealthy people were using to evade taxes. One scheme involved about 100 high-income Americans who claimed benefits in Puerto Rico without meeting the rules regarding U.S. possessions.

Another scheme involves a Malta-based personal retirement program used by certain Americans to avoid U.S. taxes. At the time, the IRS said it was “working to identify taxpayers who are improperly using Malta-U.S. Treaty rules to improperly claim exemptions.”

Despite the IRS’s claims of targeting wealthy people, it has historically audited lower-income people the most, according to a January report by Syracuse University’s Transactional Records Access Clearinghouse.

“If one ignores the fiction of auditing a millionaire through simply sending a letter through the mail, the odds that millionaires received a regular audit by a revenue agent (1.1 percent) was actually less than the audit rate of the targeted lowest-income wage-earners whose audit rate was 1.27 percent,” the report stated.

The rate of income tax audits per 1,000 individuals stood at 12.7 for the lowest-income wage earners and 2.3 for everyone else.

The report authors wrote that low-income wage earners have historically been targeted by the IRS not because they account for the most underreporting but because they are seen as “easy marks in an era when IRS increasingly relies upon correspondence audits yet doesn’t have the resources to assist taxpayers or answer their questions.”

Naveen Athrappully
Naveen Athrappully
Author
Naveen Athrappully is a news reporter covering business and world events at The Epoch Times.
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