The headquarters of the Internal Revenue Service in Washington, DC
Samuel Corum / Bloomberg via Getty Images
According to a report by the Inspector General for Tax Administration, the IRS should oversee wealthy Americans who are deliberately evading their income taxes.
Around 686,000 taxpayers who earn at least $ 200,000 a year had a combined tax credit of $ 38.5 billion in mid-May 2019, according to the watchdog.
In addition, the agency collects less than 50% of the tax debt of high-income taxpayers within a year of the case being assigned to an IRS tax collector, the report said.
More from Personal Finance:
How marginal and effective tax rates differ
A few days, some companies cost thousands of PPP loans
Unemployment benefits at risk for Americans stranded overseas
For example, high earners – those who earn at least $ 1.5 million a year – paid the IRS only 39% of the average taxes they owed, according to the audit. These taxpayers still owed about $ 2.4 billion in delinquent taxes.
“Non-compliance by high-income taxpayers can be deeply corrosive to the entire tax administration and increase the belief that the country’s tax system favors the rich,” said the Inspector General’s report.
Determining how effective the IRS is against delinquent taxes among the rich is important as limited staff employ experienced tax collectors, the report said.
Eric Hylton, commissioner for the IRS Small Business / Self-Employed Division, said the audit results were inaccurate and an incomplete presentation of the facts.
For example, the conclusion that the rich, on average, paid 39% of taxes owed only reflects what was paid to a debt collection agent within the first year of assigning cases, he said.
“Some of these cases were still actively being worked on at the end of the analysis period and the analysis does not follow the cases in their entirety,” Hylton wrote. “Hence, it cannot be used to determine what the IRS ultimately collects.”
The IRS does not give taxpayers’ income a high priority in deciding which cases to work on, the Inspector General’s report said. The agency gives greater importance to other factors such as the dollar amount of the tax balance.
However, the tax money owed is not always an accurate identifier of the rich, according to the report. For example, the largest number of high-income taxpayers (69%) owe less than $ 25,000, the watchdog found.
“It is reasonable to believe that taxpayers who earn millions of dollars can pay tax debts that are a very small fraction of that amount,” the report said.
Wealthy Americans continue to be a “high priority” for the agency’s tax collectors, Hylton said.
The IRS is evaluating its predictive models, and will continue to do so, to assess whether refinements could better target high-income criminal taxpayers, he said.