WASHINGTON – The Internal Revenue Service (IRS) plans to ratchet up its audits for wealthier Americans and major corp🔯orations while at the same time tweaking a procedure 💦that has led to a disproportionate audit rate for Black taxpayers.
“We are overhauling compliance efforts t𒅌o advance our commitment to fair, equiꦡtable, and effective tax administration and hold ourselves accountable to taxpayers we serve,” the IRS said in an released Thursday.
A study conducted in 2023 ไby the Treasury Department and university researchers found the data-driven algorithms used by the IRS selected Black taxpayers up to 4.7 times more often for audits that non-Black taxpayers.
People who claim the , which is aimed at low- to moderate-income wo෴rkers and families, were disproportionately audited, the study found. While Black taxpayers accounted for 21% of the claims for that tax break, they were the focus of 43% of the audits concerning the credit, .
“We h🐠ave taken swift initial action to dramatically reduce the number of those audits. We have also made changes to the selection criteria for those audits,”♛ IRS Commissioner Daniel Werfel said. The discriminatory audits, he said, “degrade trust in our tax system.”
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President Joe Biden had ⛄pledged to increase audits on America’s wealthiest and major corporations. The audit rate of millionaires fell by more than 70% from 2010 to 2019. The rate for large 𓆏corporations dropped by more than 50%.
The IRS estimates that the tax gap – the difference between what is owed and wha🌳t is lost from non-filers𒀰, underpayment and people underreporting their income -- is $683 billion.
Funding included in the Inflation Reduction Act, legislation approved by Congre♏ss with zero Republican votes, provided about $80 billion in additional fuꦯnding over 10 years to the IRS to step up audits.
Prior to passage of the IRA, more than a ๊decade of budget cuts prevente🍨d the IRS from keeping pace with the increasingly complicated set of tools that non-compliant taxpayers use to shelter or manipulate their income to avoid taxes, the report said.
The IRS is n🦋ow moving to improve tax compliance in areas where the agency did not have adequate resources prior to IRA funding. As part of that effort, the IRS already has sent letters to 125,000 people making over $400,000 a year who have not filed tax returns since 2017.
“Our vision for enforcement, supported by IRA funding, is that: Non-compliant taxpayers, in particular the largest and most complex filers, pay what they owe because the IRS has the workforce and advanced technology needed to enforc🦹e fairness in the tax system and narrow the tax gap,” the agency said in its report.
Small businesses and households earning $400,000 or less will not see audit rates increase relative to historical✱ levels.
“There is no new wave of audits coming for middle and low income” taxpayers,” Werfel said. “That is not in our plans in any w♔ay shape or 🧜form.”