The Internal Revenue Service has failed to collect more than $38.5 billion from taxpayers earning more than $200,000 a year — and more than $2.4 billion from taxpayers with incomes over $1.5 million, according to a new report from a Treasury Department watchdog highlighted by Bloomberg News.
Bloomberg’s Laura Davison reports:
“Auditors were only able to recoup about 39% of the more than $4 billion in unpaid taxes owed by a group of rich taxpayers with an average annual income of nearly $1.6 million, the report found. The findings suggest that the IRS should place more emphasis on a taxpayer’s income when determining whether to pursue an audit case, the Treasury Inspector General for Tax Administration said in the report released Monday. …
“The findings are the latest in a series of government accountability reports that recommend the IRS do more to pursue high-income taxpayers after audit rates dipped to historic lows in recent years. The dearth of examinations has prompted Democrats in Congress to pursue legislation that would mandate higher audit levels of businesses and wealthy individuals.”
The watchdog report made seven recommendations that it said could help the IRS improve collection from wealthy taxpayers. It suggested, for example, that the agency could use income information to better identify taxpayers who can pay their delinquent taxes. The report found that many high earners owe little relative to their incomes, but said that the IRS does not prioritize income when deciding which cases to pursue, instead placing more significance on factors such as the dollar amount of the balance owed. “It is the IRS’s belief that it is effectively addressing noncompliance by high-income individuals by focusing on the size of the amounts owed,” the report said. “As subsequently shown, this assumption is faulty.”
IRS management agreed with just two of the seven recommendations but said it plans to evaluate its models and consider additional income factors to improve its ability to predict recovery of delinquent taxes.