The Internal Revenue Service (IRS) has announced a new initiative to aggressively target 1,600 millionaires and 75 large business partnerships that collectively owe hundreds of millions of dollars in overdue taxes. IRS Commissioner Daniel Werfel revealed that enhanced federal funding and the use of artificial intelligence tools have provided the agency with effective means to identify and pursue wealthy individuals who have evaded their tax obligations.
During a press briefing, Commissioner Werfel emphasized the frustration that law-abiding taxpayers may feel when witnessing wealthy individuals neglecting their tax responsibilities. The IRS aims to address this disparity by launching a “compliance effort” directed at the identified tax evaders. This campaign is expected to target 1,600 millionaires, each of whom owes a minimum of $250,000 in back taxes, and 75 large business partnerships with an average asset value of approximately $10 billion.
Werfel highlighted the significant role played by a substantial recruitment drive and AI research tools developed by IRS personnel and contractors in identifying affluent tax dodgers. The agency is keen to demonstrate the positive outcomes resulting from increased funding received during President Joe Biden’s Democratic administration, especially as Republicans in Congress consider potential budget reductions.
New tools, including AI technology, have enabled the IRS to identify patterns and trends that were previously challenging to discern. Consequently, the agency is more confident in its ability to pinpoint instances where large partnerships may be shielding income.
In July, the IRS reported the successful collection of $38 million in delinquent taxes from over 175 high-income taxpayers within a few months. This campaign will now be scaled up, with the IRS allocating dozens of revenue officers to focus on high-end collection cases in fiscal year 2024.
A 2021 study by a team of academic economists and IRS researchers revealed that the top 1% of income earners in the United States fail to report more than 20% of their earnings to the IRS.
The IRS’s intensified tax collection efforts are scheduled to commence in October. Commissioner Werfel acknowledged that more hiring would be required to meet the demands of this endeavor.
Grover Norquist, the head of the conservative Americans for Tax Reform, expressed concerns that the IRS’s pursuit of high-wealth individuals might eventually extend to audits of middle-income Americans for political reasons.
Senate Finance Committee Chair Ron Wyden (D-Ore.) commended the IRS’s new initiative, describing it as a “big deal” and a fresh approach to addressing sophisticated tax evasion. He emphasized that this action aligns with Democrats’ efforts to ensure that the wealthiest individuals pay their fair share of taxes.
David Williams of the Taxpayers Protection Alliance, a right-leaning nonprofit, emphasized the importance of every business and individual fulfilling their tax obligations. However, he expressed hope that this initiative would not lead to the mass hiring of new agents for widespread audits.
The IRS’s expanded capabilities to identify tax delinquents were made possible by the Inflation Reduction Act, signed into law by President Biden in August 2022, which provided additional resources to the agency. However, the $80 billion infusion allocated under the law may be subject to potential reductions by Congress.
House Republicans have already included a $1.4 billion reduction in IRS funding in the debt ceiling and budget cuts package passed earlier in the year. The White House has also disclosed a separate agreement to redirect $20 billion from the IRS to non-defense programs over the next two years.
As the possibility of a government shutdown looms amidst a spending dispute, further reductions to the agency’s budget remain a concern.