The Internal Revenue Service on Friday turned up the dial on its scrutiny of millionaires, large investment firms and multinational companies that owe taxes.
The agency said it had now collected more than half a billion dollars from seven-figure earners with tax debt, under a recent initiative to focus on the wealthy. Some $360 million has been hauled in since late October, bringing the total so far under the effort to $482 million. Including time before the initiative was launched last September, the agency said it has roped in $520 million from high-income earners.
While the IRS didn’t say how much still remained to be collected, it said 1,600 U.S. millionaires are tax delinquents. The agency has assigned more than 900 cases to revenue officers. It’s looking at individual taxpayers with more than $1 million in income and more than $250,000 in recognized tax debt.
The focus on the affluent comes as the nation’s tax collector intensifies its focus on hedge funds, law firms, real estate companies and high-income tax cheats that may be skirting the law. When IRS Commissioner Danny Werfel announced the high-income focus last September, he said the agency would begin auditing 75 of the largest partnerships in the country, each with more than $10 billion in assets, by the end of that month.
Research cited by the Joint Economic Committee of Democrats shows that focusing tax enforcement on the richest individuals yields the biggest bang for the buck, with as much as $12 in returns for every $1 dollar spent on audits.
“The IRS continues to increase scrutiny on high-income taxpayers as we work to reverse the historic low audit rates and limited focus that the wealthiest individuals and organizations faced in the years that predated the Inflation Reduction Act,” the agency said in a statement Friday. That 2022 legislation gave the perenially cash-strapped agency an additional $80 billion in funding over a decade — later reduced to around $60 billion. The IRS said last April that it would use the bulk of its war chest on enforcement, meaning collecting unpaid taxes.
The agency is also scrutinizing wealthy investors in partnerships who don’t pay self-employment tax on their share of partnership income because they are technically “limited partners,” with no involvement in the day-to-day operations. The IRS won a major victory last November when U.S. Tax Court ruled in a case involving New York-based hedge fund Soroban Capital Partners that some limited partners in a partnership would indeed owe the tax. The IRS said it was currently auditing 80 “wealthy individuals” who are limited partners in investment partnerships.
Not just rich individuals are in the crosshairs. The IRS also said Friday that as of last month, it had open examinations of 76 of the largest partnerships in the U.S., including ones used by hedge funds, real estate investment partnerships, publicly traded partnerships, large law firms and other industries. “The IRS has identified ongoing discrepancies on balance sheets involving partnerships with over $10 million in assets, which is an indicator of potential non-compliance,” the agency said.
The IRS is using artificial intelligence, or AI, to pour over those returns. It’s also looking at large multinational corporations with overseas subsidaries. As of last mid-November, the IRS had sent “compliance alerts” to 180 such subsdiaires. It didn’t name the companies.
Multinational corporations around the world, including Apple Inc., Nike Inc. and botox-maker Allergan plc, now part of AbbVie Inc., shifted $1 trillion in profits from the countries where they do business to a small number of tax havens in Ireland, the Caribbean and Singapore in 2016, according to a 2021 report by the International Consortium of Investigative Journalists.
The IRS said that as it hires new accountants in early 2024, it would launch an additional 60 audits of the largest corporate taxpayers. Companies would be selected using a combination of artificial intelligence and IRS staff with subject matter expertise on cross-border tax and corporate issues.
Last month, the IRS said it would waive $1 billion in penalties that piled up on unpaid tax bills during the pandemic for nearly 5 million people, businesses and nonprofits that didn’t receive automated reminders for their 2020 and 2021 tax debts. But it also resumed sending out a “special reminder letter” to millions of Americans about their unpaid tax bills.
