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IRS Credits Its Enforcement and Recovery Successes to Increased Funding

S.J. Steinhardt
Published Date:
Jan 12, 2024

The IRS, touting its progress toward better enforcement as a result of funding provided by the Inflation Reduction Act, announced that it has recovered millions of dollars in unpaid tax debt.

The IRS has now collected $482 million from 1,600 millionaires who have not paid their tax debts, it said, as it continued to expand enforcement efforts related to high-income individuals, large corporations and complex partnerships. An element of the enforcement expansion is the focus on people using partnerships to avoid paying self-employment taxes.

“This is aimed at partners who try to evade self-employment tax by using an exemption that applies specifically to limited partners, even though they don't qualify as such,” IRS Commissioner Danny Werfel told a conference call with reporters, as reported by Accounting Today. “Our work in this area using new [Inflation Reduction Act] funding has helped us increase our efforts, which now includes more than 80 audits."

"The IRS continues to increase scrutiny on high-income taxpayers as we work to reverse the historic low audit rates and limited focus that the wealthiest individuals and organizations faced in the years that predated the Inflation Reduction Act," Werfel said in the announcement. "We are adding staff and technology to ensure that the taxpayers with the highest income, including partnerships, large corporations and millionaires and billionaires, pay what is legally owed under federal law. At the same time, we are focused on improving our taxpayer service for hard-working taxpayers, offering them more in-person and online resources as part of our effort to deliver another successful tax season in 2024. The additional resources the IRS has received is making a difference for taxpayers, and we plan to build on these improvements in the months ahead."

Actions that the IRS is taking to pursue unpaid taxes include prioritizing high-income cases; pursuing multimillion-dollar partnership balance sheet discrepancies; ramping up of audits of 76 of the largest partnerships, using artificial intelligence (AI): increasing compliance efforts on the U.S. subsidiaries of large foreign companies that distribute goods in the United States and do not pay their fair share of tax on the profit they earn from their U.S. activity; expanding the large corporate compliance program; and embarking on a partnership self-employment tax initiative.

The IRS is also expanding its compliance efforts related to the biggest U.S. corporations, including hiring accountants, Werfel told the reporters on the call. "Inflation Reduction Act funding is helping us expand our large corporate compliance program, which covers entities with average assets of more than $24 billion and an average taxable income of about $526 million per year," he said. "Hiring new accountants has allowed us to open up 60 new audits of taxpayers in this group. As with partnerships, we're selecting these corporations for audit using a combination of artificial intelligence and subject matter expertise in areas such as cross-border issues, corporate planning and transactions."

The Inflation Reduction Act's original allocation of $80 billion was cut to $60 billion as a result of last year’s agreement to raise the debt limit, but Werfel told the reporters that the agency would still spend its now-$60 billion allocation over the next 10 years and spread the need for more funding into later years, The Associated Press reported. “Our intent is to spend the money to have maximum impact in helping taxpayers to have maximum impact now and in the immediate future,” he said.

Despite the progress that the IRS has made in these and other areas, such as improved customer service and upgraded technology, Republican lawmakers still seek to cut its funding further. House of Representatives Speaker Mike Johnson (R-La.) hopes to claw back an additional $10 billion from the IRS in the 2025 budget, The Washington Post reported, although he and Senate Majority Leader Chuck Schumer (D-N.Y.) recently reached an agreement on the 2024 budget that would accelerate the $20 billion rescission.

“[The] impact of the rescission that’s being discussed as part of the current budget will not impact our efforts until the later years,” said Werfel, according to the AP.

To get the latest guidance on navigating clients’ tax issues, and to meet key IRS players and ask questions, attend the Foundation for Accounting Education’s NYSSCPA Meet The IRS Webcast on Jan. 25.

Click here to see more of the latest news from the NYSSCPA.