Just days after the Treasury Department reported that millionaires owe the Internal Revenue Service about $2.4 billion in unpaid taxes, a new study has found that audits of the wealthy have plunged 72%.
The steep drop off in audits of millionaires since 2012 has occurred even as the number of wealthy in the nation has skyrocketed over that same time. Fewer than 2 of every 100 U.S. taxpayers reporting an income of more than $1 million in 2020 were audited, according to the study by Syracuse University’s Transactional Records Access Clearinghouse issued Thursday.
Audits fell from nearly 50,000 in 2012 to just over 11,000 last year. There were 637,000 people in the U.S. who reported a million dollars or more of annual income last year — compared with about 337,000 in 2012.
The increasing number of free passes to wealthy tax cheats is further distorting a tax system that already appears shockingly unjust, especially as the nation struggles to dig itself out of the economic hole created by COVID-19.
Funding cuts to the very agency that can pull in more revenue are a key part of the problem. The TRAC study blamed deep cuts in IRS staffing and budget for hamstringing its ability to audit wealthy tax cheats, letting billions of dollars in tax revenue “slip through its fingers.”
“Over the past decade, Congress has imposed severe funding and staffing cuts at the Internal Revenue Service, cuts that have seriously undermined the agency’s ability to administer tax laws in a fair and effective manner,” the TRAC report said.
“The inspector general’s report reiterates wealthy tax cheats are stealing billions from the American people.”
Earlier this week, the Treasury Department reported that IRS auditors recouped only about 39% of the more than $4 billion in unpaid taxes owed by audited rich taxpayers with an average annual income of nearly $1.6 million.
The report, by the treasury inspector general for tax administration, concluded that the IRS should “prioritize” collecting those unpaid taxes.
“With its limited resources, it is important to determine if the IRS is effectively addressing nonpayment by high-income taxpayers,” the report noted. The owed money would likely be paid with some pressure, the report concluded, because the taxes are a relatively small portion of the taxpayers’ assets.
In response to the report, Senate Finance Committee chair Ron Wyden (D-Ore.) called on the IRS to again target wealthy taxpayers who are dodging their obligations.
“The inspector general’s report reiterates wealthy tax cheats are stealing billions from the American people,” Wyden said in a statement. “The report notes the IRS could make significant progress in cracking down on tax cheats by focusing on those who make the most money and owe the most in unpaid tax bills.”
The TRAC report also found the IRS is falling down on the job regarding corporate audits. Nearly 2 out of every 3 of the 755 biggest corporations in the nation — those with more than $20 billion in assets — weren’t audited last year. But in 2012, nearly all of those returns (93%) were audited by the IRS.
The corporate audits in 2012 turned up $10 billion in unreported taxes. Far fewer audits turned up only $4.1 billion owed during fiscal year 2020, according to the TRAC report.
After the Treasury Department report, the IRS defended its strategy of going after tax cheats as the most efficient, based on “robust historical datasets.”