The Internal Revenue Service (IRS) has made significant strides in its effort to crack down on wealthy tax cheats, recovering more than $1 billion in unpaid taxes from high-income earners since the initiative began last fall. This substantial recovery underscores the effectiveness of the enforcement efforts funded by the 2022 Inflation Reduction Act, which aimed to bolster the IRS's capacity to pursue tax evaders.
The joint announcement by the IRS and the U.S. Treasury Department highlights the positive impact of the $80 billion allocated to the agency under the Inflation Reduction Act. This funding was intended to enhance the IRS's ability to collect overdue taxes, improve taxpayer services, and modernize its operations. Contrary to claims by some Republican lawmakers, who alleged that the funding would lead to an army of new agents targeting everyday Americans, the focus has been squarely on high-income individuals and large corporations.
"President Biden's Inflation Reduction Act is increasing tax fairness and ensuring that all wealthy taxpayers pay the taxes they owe, just like working families do," U.S. Secretary of the Treasury Janet Yellen said in a statement. "A new initiative to collect overdue taxes from a small group of wealthy taxpayers is already a major success, yielding more than $1 billion in revenue so far."
The IRS initiative identified approximately 1,600 taxpayers with annual incomes exceeding $1 million and tax debts over $250,000. The effort to collect from these individuals began with a series of letters sent to their homes, giving them a specified time frame to either pay the overdue taxes or dispute the claims. This process, while standard, has been significantly bolstered by the additional resources provided by the Inflation Reduction Act.
IRS Commissioner Danny Werfel emphasized that the agency previously lacked the staffing and resources necessary to effectively pursue high-income tax evaders. "The taxes were clearly owed by these people, but we didn't have the people or the resources to follow up with them," Werfel said during a call with reporters.
The IRS's enhanced enforcement measures include ramping up audits of wealthy taxpayers, corporations, and large business partnerships. This effort is supported by the hiring of more staff and the implementation of advanced technologies, such as artificial intelligence, to better identify and pursue tax evaders. Additionally, the IRS is scrutinizing the personal use of corporate jets, which can often be a gray area for tax compliance.
The increased funding has also allowed the IRS to improve taxpayer services. For example, the agency was able to answer one million more calls this year compared to the previous tax season. Efforts to digitize the IRS's vast amounts of paperwork are also underway, aiming to streamline operations and reduce processing delays.
Earlier this year, the IRS launched a pilot version of its own tax filing service, known as Direct File, allowing Americans to file their returns for free directly with the agency. More than 140,000 people used the program successfully, and plans are in place to expand the service next year.
Despite these successes, the funding allocated to the IRS has faced significant opposition from Republican lawmakers. In a deal to address the debt ceiling and avoid a U.S. default last year, Democrats agreed to a $20 billion cut from the IRS's funding over the next two years. This reduction was accelerated in January to pass a full-year federal spending law and avoid a partial government shutdown.
House Republicans have continued to propose further cuts to the IRS, including a $1.4 billion reduction in the fiscal year 2025 proposal and cuts to the Direct File program. These proposed cuts reflect ongoing political battles over the agency's funding and its role in tax enforcement.
Eugene Steuerle, a fellow and co-founder of the Urban-Brookings Tax Policy Center, noted that any increase in government investigations might appear intrusive to taxpayers. However, he suggested that if the IRS can demonstrate transparency in its operations, public support for its activities could grow. "If the IRS can show taxpayers how it is conducting its investigations, there would be more public support for this activity and the agency," Steuerle said.
