The IRS is continuing its historic trend of pursuing more low-income groups as relatively fewer billionaires and millionaires have come under its audit sweep, according to a recent report by Syracuse University’s Transactional Records Access Clearinghouse (TRAC).
During fiscal year 2022, millionaires “did have the highest odds of being audited. However, if one ignores the fiction of auditing a millionaire through simply sending a letter through the mail, the odds that millionaires received a regular audit by a revenue agent (1.1 percent) was actually less than the audit rate of the targeted lowest income wage-earners whose audit rate was 1.27 percent!” the report said.
The rate of income tax audits per 1,000 individuals stood at 12.7 for the lowest-income wage earners and 2.3 for everyone else.
This made low-income wage earners—who receive earned income tax credit—the taxpayer class with by far the highest audit rates, clocking around five and a half times more than everyone else. Earned income tax credit is provided to offset taxes for the low-wage earners in the country.
The report notes that low-income wage earners have historically been targeted by the IRS not because they account for the most underreporting, but because they are seen as “easy marks in an era when IRS increasingly relies upon correspondence audits yet doesn’t have the resources to assist taxpayers or answer their questions.”
Taxation And Income Group
In fiscal year 2022, over 164 million individual income tax returns were filed, of which the IRS audited 626,204 returns. This is less than the 659,003 returns audited by the agency in fiscal 2021. The audit rate fell to 3.8 per 1,000 returns in fiscal 2022 compared to 4.1 per 1,000 returns in the previous fiscal year.
During fiscal 2020, the rate of income tax audits of the lowest income wage earners receiving earned income tax credit was 7.9 per 1,000 returns, which rose by over 60 percent to 12.7 in fiscal 2022. In the meantime, the rate of income tax audits for everyone else only rose from 2 to 2.3, an increase of just 15 percent.
While 63 percent of audits done on millionaires during fiscal year 2020 were by revenue agents, this declined to 46 percent in fiscal year 2022. The remaining audits were correspondence audits or audits done by a tax auditor.
“During FY 2022, years of budget cuts and increased needs in other sectors left the IRS with only around 1,400 staff-years of revenue agent time to apply to the 165 million income tax 1040 returns that were filed. Even though the IRS applied one-fourth of these hours to auditing millionaires, still barely over 1 out of every 100 millionaires were audited,” the report states.
Repealing IRS Agents
The TRAC report comes as Republicans have vowed to repeal the Biden administration’s push to hire 87,000 new IRS agents.
The Democrats’ Inflation Reduction Act, which was signed into law by Biden in August, had set aside $80 billion in funding for the IRS for hiring 87,000 new agents.
Only $3.18 billion was set aside for taxpayer services, with $45.6 billion going for tax enforcement. The move was met with strong resistance from the GOP.
“On our very first bill, we’re going to repeal 87,000 IRS agents,” Rep. Kevin McCarthy (R-Calif.) said in September while unveiling an outline of House Republicans’ agenda for the 118th Congress. “Our job is to work for you, not go after you.”
Republicans, after gaining the House majority for the 118th Congress, selected McCarthy as the House Speaker over the weekend.