By Nathalie Voit
In a statement released on May 26, the U.S. International Revenue Service (IRS) said it had doubled its audit rates for high-income individuals.
Between September 2021 and May 2022, the agency said audit rates for taxpayers in every income category above $100,000 doubled. Audit rates for those making between $500,000 and $1 million, for instance, doubled to 0.6% in the last seven months, the agency showed in updated audit numbers for the 2019 tax year. Similarly, audit rates for the $1 million to $5 million income category also more than doubled from 0.6% to 1.3% during that same time period. According to IRS data, review rates for taxpayers earning more than $10 million jumped more than four-fold to 8.7% since last fall.
The IRS noted that audits for high-net-worth individuals usually begin later in the statutory period. (The IRS can audit tax returns within three years after they are filed, according to federal law).
As such, returns for 2019 (which had to be filed by May 15, 2020, or by October 15, 2020, at the latest) could still be eligible for auditing until 2023.
“As new audits of returns filed for recent tax years are opened, audit rates for those years will increase,” the statement read.
Enforcing tax compliance among the wealthiest remains one of the IRS’s top priorities, according to the statement.
“Substantially, all experienced field revenue agents are focused on high-income individuals and their related entities,” the agency said.
However, the IRS admitted it had only 6,500 front-line revenue agents at its disposal engaged in this type of “high-end noncompliance” work.
These resource constraints have limited the ability of the IRS to review global high net-worth individuals, large corporations, and complex business structures such as partnerships. The agency noted overall audit rates for those at the high-end of the income distribution–whose returns are typically the most complex and time-consuming–have substantially declined since the 2010 tax year.
“Audit rates for taxpayers with incomes of more than $200,000 decreased the most, largely because higher-income audits tend to be more complicated and require auditors to manually review multiple issues,” Chief Taxpayer experience Officer for the IRS Ken Corbin told the House Oversight Subcommittee in May, according to CNBC.
You can find the release here.