IRS Takes Aim at 1,600 Millionaires

By Yuval Rosenberg

Welcome to the weekend! The House will be back next week and the Senate is set to start debate on its versions of the annual appropriations bills, so the year-end fight over federal spending and funding the government is about to heat up. Until then, here’s what you should know.

IRS Announces Crackdown on 1,600 Millionaires

The IRS announced Friday that it is targeting a group of high-income earners and corporations that have failed to pay their taxes in full — including about 1,600 millionaires who owe hundreds of millions of dollars in unpaid taxes.

In addition to the high-income individuals, the IRS said it would focus on 75 large business partnerships, which control an average of $10 billion in assets. Those partnerships include hedge funds, real estate investment partnerships and large law firms, all of which have exceptionally complex tax structures.

Driven by new funding: The tax agency said its effort is made possible by the funding it has received through the Inflation Reduction Act, which initially provided $80 billion over 10 years to boost IRS staffing and technology, though some of that funding has been redirected as part of the debt limit deal earlier this year.

IRS Commissioner Daniel Werfel told reporters that the agency has been involved in a significant hiring effort since the legislation passed last year, and the expanded workforce has used new artificial intelligence tools to identify wealthy taxpayers who have "cut corners" or engaged in sophisticated schemes to avoid taxes.

"This new compliance push makes good on the promise of the Inflation Reduction Act to ensure the IRS holds our wealthiest filers accountable to pay the full amount of what they owe," he said, per the Associated Press. "We will increase our compliance efforts on those posing the greatest risk to our nation’s tax system, whether it’s the wealthy looking to dodge paying their fair share or promoters aggressively peddling abusive schemes."

The agency said it has already achieved some successes, including the recovery of $38 million in delinquent taxes from more than 175 high-income taxpayers earlier this year.

The political context: Republicans have complained bitterly about that funding increase for the IRS and have attempted to eliminate nearly all of it, in some cases baselessly charging that the money will be used to hire thousands of armed tax agents who will relentlessly persecute innocent families and small businesses. The debt ceiling and budget deal reached in June included a $1.4 billion budget cut for the IRS, as well as an agreement to divert $20 billion to other agencies over the next two years.

Friday’s announcement pushes back against that GOP narrative and the related effort to rescind the additional funding. Highlighting the positive results so far, the agency said explicitly that it "will shift attention to wealthy from working-class taxpayers," with a particular focus on "high-income earners, partnerships, large corporations and promoters abusing the nation's tax laws."

It’s unlikely, however, that the announcement will satisfy anti-tax activists and their political allies. Grover Norquist of Americans for Tax Reform — a tax reduction advocate who famously said he wanted to deny the government funding so that it becomes small enough to "drown it in the bathtub" — warned that there is always the danger that the IRS will change its focus in the future. "This power and these resources allow them to go after anyone they want," he told the Associated Press. "The next step is to go after anyone they wish to target for political purposes."

Still, the IRS will continue to make its case for its new approach, and Democrats will seek to protect what remains of the funding boost. "I hope that my Republican colleagues on the House Appropriations Committee will work with Democrats to ensure the IRS has the resources they need to effectively carry out their responsibilities and serve the American taxpayers," House Majority Leader Steny Hoyer told The Hill.

Federal Debt Rose Last Quarter at Fastest Pace in Three Years: Fed

Federal government debt rose at an annual rate of 12.7% in the second quarter of the year, up from a 4.5% annual rate in the previous quarter and the fastest pace since a pandemic-fueled jump three years earlier, according to Federal Reserve data released Friday. "Part of the reason for the jump was a surge in Treasury issuance following the resolution of the debt-ceiling debacle," Bloomberg’s Augusta Saraiva notes.

The Fed report also showed that state and local government debt grew at an annual rate of 2.8% over the quarter, the fastest pace since the third quarter of 2021.

U.S. household net worth, meanwhile, rose 3.7% over the April-to-June period, reaching a record near $154.3 trillion with the help of a rising stock market and climbing real estate values.

Number of the Day: $50 Million

The White House has completed a $50 million, year-long "gut renovation" of its Situation Room, the famed space "where presidents have observed counterterrorism operations and discussed top-secret intelligence for decades," as The Washington Post reports.

The upgrade, the first since 2007, reportedly involved demolishing and rebuilding the entire facility, covering some 5,500 square feet, to improve security, technology and upholstery. The new facility retains the classic look moviegoers might recognize, featuring blue carpet and mahogany walls (see the main meeting room table below). "In terms of aesthetic, think NASA command meets Jason Bourne meets Aaron Sorkin’s ‘The West Wing,’" ABC News says.

Marc Gustafson, senior director for the Situation Room, told reporters that the redesign was done with the goal of never having to completely gut to space again. "Modular designs and removable panels will allow for new technology and other upgrades to be swapped in without gutting the Situation Room in the future," the Post explains.

One section of the facility that might be familiar to the public has been replaced, though. The smaller room where President Barack Obama and top staffers watched the 2011 raid that killed Osama bin Laden has been replaced by two smaller breakout rooms reported to be about the size of walk-in closets, though the room Obama used was preserved for future display at his presidential library.

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