The nation’s millionaires and billionaires avoid more than $150 billion a year in taxes, increasing the government’s deficit and creating a “lack of fairness” in the tax system, according to the head of the Internal Revenue Service.
With billions of dollars in new funding from Congress, the IRS has begun a sweeping crackdown on wealthy taxpayers, partnerships, and large corporations. IRS Commissioner Danny Wuerffel said in an exclusive interview with CNBC that the IRS Commissioner is working to eliminate tax evasion and ensure that all taxpayers pay their fair share of tax returns. He said he had launched the program.
“If you look at the so-called tax gap between the amount of tax paid and the amount paid, millionaires and billionaires either don’t file or don’t file. [are] “If they’re not reporting their income, that’s $150 billion of our tax gap. There’s a lot of work to be done,” Werfel said.
Werfel said the IRS’s long-standing underfunding has left it without the staff, technology and resources needed to fund audits, especially the most complex and advanced returns that require more resources. Stated. Audits of taxpayers making more than $1 million a year have declined by more than 80% over the past decade, while the number of taxpayers making more than $1 million has jumped 50%, according to IRS statistics.
“In cases of complex returns, it has become increasingly difficult to determine the outstanding balance,” he said. “So, to ensure fairness, we want to make sure that even if you are a complex filer who can afford to hire a lawyer and an accountant, you are a simpler filer who takes the standard deduction on a single income. However, the IRS can determine the amount owed to us as well. It’s a fairer system.”
Some Republicans in Congress have increasingly criticized the IRS and its expanded enforcement. They argue that the new wave of audits will burden small businesses with unnecessary bureaucracy and years of fruitless investigations, without delivering the promised returns.
The Inflation Control Act gave the IRS an $80 billion infusion, but Congressional Republicans won a deal last year to take back $20 billion of the funds. Now they are calling for further cuts.
Last week, the Treasury Department estimated that increased IRS enforcement would result in an additional $561 billion in tax revenue between 2024 and 2034, which is higher than originally expected. According to the IRS, for every extra dollar spent on enforcement, the IRS earns about $6 in revenue.
The IRS is touting the early success of its program to collect unpaid taxes from billionaires. The agency has identified 1,600 millionaire taxpayers who have not paid at least $250,000 in levies each. So far, the IRS has collected more than $480 million from the group and is “still contributing,” Werfel said.
Internal Revenue Service (IRS) Commissioner Danny Wuerffel speaks after being sworn in at IRS Headquarters in Washington, DC, USA, on Tuesday, April 4, 2023.
Ting Sheng | Bloomberg | Getty Images
The agency announced Wednesday a program to audit private jet owners who use their planes for personal travel and may not properly account for travel and taxes. Werfel said the agency has begun using public databases and analytical tools on private jet flights to better identify tax returns with the highest potential for tax evasion. He has launched dozens of audits of companies and partnerships that own the jets, which could lead to audits of wealthy individuals.
Werfel said tax credits from corporate jets could amount to “tens of millions of dollars” for some companies and owners.
Limited partnerships are also a potentially rife area for tax evasion, Werfel said, adding that many wealthy individuals shift their income into business entities to avoid income taxes.
“What we started to see was that some taxpayers were insisting on limited partnerships even though it was unfair,” he said. “They were basically hiding their income under the guise of a limited partnership.”
The IRS launched the Large Partnership Compliance Program to examine some of the largest and most complex partnership interests. Werfel said the IRS has already begun investigating 76 partnerships, including hedge funds, real estate investment partnerships and large law firms.
Werfel said the agency is better identifying returns that are most likely to contain evasion or errors, including leveraging artificial intelligence as part of the program. Not only can AI help detect tax evasion, but it can also help avoid audits of taxpayers who follow the rules.
“Imagine all the audits laid out on a table in front of us,” he said. “What the AI does is it allows us to put on night vision goggles. What night vision goggles allow us to do is better understand where the risk is higher.” [of evasion] It’s a low risk place and it benefits everyone. ”
Correction: The IRS collected $480 million from a group of billionaire taxpayers who failed to pay. Previous versions incorrectly listed the amount collected.
