IRS working to increase audit rates for high-income Americans

BRAZIL – 2022/05/22: In this photo illustration the Internal Revenue Service (IRS) website homepage seen on a computer screen through a magnifying glass. (Photo Illustration by Rafael Henrique/SOPA Images/LightRocket via Getty Images)

The IRS increased its audit rates for employees earning $100,000 or more based on data starting in fiscal year 2021.

The IRS said “resource constraints” have limited the agency’s ability to conduct audits against high net worth individuals as well as large and complex businesses,” according to a statement released in May.

“Audit rates for taxpayers with incomes over $200,000 have declined the most, largely because audits for higher incomes tend to be more complicated and require auditors to manually review multiple issues” , told the House Ken Corbin, head of taxpayer experience for the agency. Oversight subcommittee in May.

A report 2021 found that IRS audits overall decreased by 44% between fiscal years 2015 and 2019.

The report found that Americans earning more than $5 million a year had only a 2% chance of being audited, according to the report.

The most recent announcement from the IRS comes as Democratic leaders push to raise taxes on some high earners and use the money to expand Medicare solvency.

Under the latest proposal, individuals earning more than $400,000 a year and couples earning more than $500,000 should pay a 3.8% tax on their income from tax-advantaged businesses called pass throughs. Until now, many of them used a loophole to avoid paying this fee.

That would bring in about $203 billion over a decade, which Democrats say would be used to delay until 2031 a shortfall in the Medicare trust fund that pays for hospital care. This fund is currently expected to start running out of money in 2028, three years early.

Most US companies are intermediaries, which include partnerships and sole proprietorships and range from one-person law firms to some large corporations. Owners count profits as income when paying personal income tax, but these businesses do not pay corporation tax, which means they avoid paying two levels of tax.

As the November election for control of Congress nears, Democrats hope the two proposals will be a cure for a campaign season that promises to be bleak for the moment. Republicans are favored to win a majority in the House and could do the same in the Senate.

Democrats say both plans will show voters they are fighting to lower health care costs and protect the wildly popular Medicare program, positions they say will be dangerous for Republicans. Polls show widespread public concern over historically high inflation rates in recent months, supply chain issues and other economic issues which, along with President Joe Biden’s dismal popularity rating are pushing the path of Republican voters, according to the GOP.

The Associated Press contributed to this story. It was reported from Los Angeles.

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