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IRS Commissioner Says Wealthy Individuals Evade $150B a Year in Taxes

S.J. Steinhardt
Published Date:
Feb 26, 2024

As the IRS uses some of its Inflation Reduction Act funding to increase its enforcement efforts, it has launched an initiative to recover more than $150 billion a year in unpaid taxes from wealthy individuals, Commissioner Danny Werfel said in a recent interview with CNBC. The agency is also targeting partnerships and large companies.

The IRS announced in mid-January that the expanded enforcement efforts related to high-income individuals, large corporations and complex partnerships had resulted in the collection of $482 million from 1,600 millionaires who had not paid their tax debts.

“When I look at what we call our tax gap, which is the amount of money owed versus what is paid for, millionaires and billionaires that either don’t file or [are] underreporting their income, that’s $150 billion of our tax gap,” Werfel told CNBC. “There is plenty of work to be done.”

Audits of taxpayers making more than $1 million a year fell by more than 80 percent over the last decade, while the number of taxpayers with incomes of $1 million jumped by 50 percent, according to IRS statistics. Werfel said that created a “lack of fairness” in the tax system.

“For complex filings, it became increasingly difficult for us to determine what the balance due was,” he said. “So to ensure fairness, we have to make investments to make sure that whether you’re a complicated filer who can afford to hire an army of lawyers and accountants, or a more simple filer who has one income and takes the standard deduction, the IRS is equally able to determine what’s owed. And to us, that’s a fairer system.”

Congressional Republicans have criticized the agency’s efforts and have already been able to rescind $20 billion of the $80 billion allocated to the IRS by the Inflation Reduction Act.

The $80 billion allocation, if it had been fully appropriated, would have yielded a significant return on investment, allowing the agency to recover nearly $561 billion in overdue and unpaid taxes over the next 10 years, higher than earlier estimates, a recent Treasury Department analysis found.

The IRS recently announced a program to audit the owners of private jets. The audits will target aircraft usage by large corporations, large partnerships and high-income taxpayers, looking into whether the use of jets is being properly allocated between business and personal reasons for tax purposes.

Werfel told CNBC that for some companies and owners, the tax deduction from corporate jets can amount to “tens of millions of dollars.”

Werfel also discussed the IRS’s new Large Partnership Compliance program, which examines some of the largest and most complicated partnership returns. Werfel said the IRS has already opened examinations of 76 partnerships—including hedge funds, real estate investment partnerships and large law firms.

Werfel said the agency is using artificial intelligence as part of this program, as well as others, to identify returns most likely to contain evasion or errors.

“Imagine all the audits are laid out before us on a table,” he said. “What AI does is it allows us to put on night vision goggles. What those night vision goggles allow us to do is be more precise in figuring out where the high risk [of evasion] is and where the low risk is, and that benefits everyone.”

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