The headquarters of the Internal Revenue Service in Washington, DC
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The IRS should monitor wealthy Americans who intentionally circumvent their income taxes more vigorously, according to a report from the Treasury Inspector General for Tax Administration.
About 686,000 taxpayers making at least $ 200,000 a year had a combined tax balance of $ 38.5 billion as of mid-May 2019, according to the watchdog.
Additionally, the agency collects less than 50% of the tax debt of high-income taxpayers within one year of the case being assigned to an IRS tax collector, according to the report.
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For example, high-income people – those who earn at least $ 1.5 million a year – paid the IRS just 39% of the taxes they owed, on average, according to the audit. Those taxpayers still owed about $ 2.4 billion in delinquent taxes.
“Non-compliance by high-income taxpayers can have a significant corrosive effect on the tax administration in general, as well as increase the belief that the nation’s tax system favors the wealthy,” according to the Inspector General’s report.
It is important to determine how effectively the IRS is addressing delinquent taxes among the wealthy due to its limited staff of experienced tax collectors, according to the report.
Eric Hylton, commissioner of the IRS Small Business / Self Employed Division, said the audit findings are inaccurate and an incomplete representation of the facts.
For example, the finding that the wealthy paid 39% of taxes owed, on average, only reflects what was paid within the first year of cases assigned to a collection officer, he said.
“Some of these cases were still being actively worked on at the end of the review period, and the analysis does not track the cases in their entirety,” Hylton wrote. “Therefore, it cannot be used to determine what the IRS ultimately collects.”
The IRS does not place a high priority on taxpayer income when determining which cases to work on, the Inspector General’s report said. The agency places greater importance on other factors, such as the dollar amount of the tax balance.
But the tax money owed isn’t always an accurate identifier for the wealthy, according to the report. For example, the largest number of high-income taxpayers (69%) owe less than $ 25,000, the watchdog found.
“It is reasonable to believe that taxpayers who make millions of dollars can pay tax debts that add up to a very small fraction of that amount,” the report says.
Wealthy Americans remain a “high priority” for the agency’s tax collectors, Hylton said.
The IRS is evaluating, and will continue to evaluate, its predictive models to judge whether the refinements might better target high-income delinquent taxpayers, he said.