A watchdog report reveals the IRS has not enforced a directive to limit audits on taxpayers earning less than $400,000 annually.
At a Glance
- IRS failed to limit audits on taxpayers earning under $400,000.
- Audit rates for lower and middle-income groups have not decreased.
- IRS has highlighted modernization and taxpayer service improvements.
- New efforts to enforce tax compliance on wealthy individuals and large corporations.
Watchdog Report Uncovers IRS Shortcomings
A recent watchdog report has uncovered that the IRS has failed to enforce a directive meant to curb audit rates for taxpayers earning under $400,000 annually. This directive aimed at providing relief and fairness to lower and middle-income individuals. However, the frequency of audits for this income bracket has not decreased as intended and, in some cases, has even escalated, raising serious questions about the IRS’s adherence to policy.
The report comes in light of the IRS’s recent update to its Strategic Operating Plan, which highlighted numerous accomplishments in taxpayer service, tax compliance, and technology modernization since the Inflation Reduction Act (IRA) passed in August 2022. IRS Commissioner Danny Werfel emphasized these modernization changes as essential for serving the nation and taxpayers.
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IRS Under Scrutiny
The IRS released a 52-page document accompanying the Strategic Operating Plan update which discusses priorities for fiscal years 2024 and 2025. It outlines major projects and outcomes expected over the next 12 to 18 months, with a focus on improving taxpayer services. Despite these efforts, the watchdog report suggests that taxpayers earning under $400,000 have not seen the promised reduction in audit rates.
“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,” said IRS Commissioner Danny Werfel.
The IRS plans to increase audits on wealthy taxpayers, large corporations, and complex partnerships by 2026. The update claims that the IRS will not increase audit rates for small businesses and taxpayers earning under $400,000, yet lower-income groups’ audit rates remain high. There are still significant gaps in the directive’s implementation, causing financial strain for middle and lower-income taxpayers.
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IRS’s Efforts Moving Forward
The IRS is launching a major effort to restore fairness using the Inflation Reduction Act funding. Focus areas include high-income earners, partnerships, and large corporations that notoriously abuse tax laws. The agency will deliver advanced technology and analytics to improve case selection and detect tax cheating, aiming to reverse the trend of low audit rates for wealthy filers.
“The nation relies on the IRS to collect funding for every critical government mission — from keeping our skies safe, our food safe, and our homeland safe. It’s critical that the agency addresses fundamental gaps in tax compliance that have grown during the last decade,” added Commissioner Werfel.
As the IRS continues to refine its approach, taxpayers await the promised relief. Ensuring fairness and adherence to stated policies will be key to restoring trust. The agency’s plans to prioritize high-income cases and utilize advanced technology provide hope for future improvements while addressing the current imbalance directly.
