Tax audits of the super-rich IRS have plummeted for over a decade, a government report says

The headquarters of the Internal Revenue Service in Washington, DC

Andreas Harrer | Bloomberg | Getty Images

The wealthiest Americans have their taxes audited at a far lower rate than they did more than a decade ago, in large part due to staffing and funding constraints at the Internal Revenue Service, a new report says.

The accounting rate for Americans making more than $5 million a year fell from over 16% in 2010 to just over 2% in 2019, according to a report by the Government Accountability Office, a federal regulator. That means only about 1 in 50 high earners were audited in 2019, compared to about 1 in 6 in 2010.

The decline in auditing, particularly among the wealthy, has become a heated political issue in Washington. The report estimates that taxpayers underreported their income taxes by a total of $245 billion a year between 2011 and 2013, and said that “taxpayers are more likely to voluntarily comply with tax laws when they believe their tax returns can be audited.”

The main reason for the decline is a lack of IRS funding, according to the report. In fiscal 2021, the agency’s budget was $11.9 billion — $200 million less than the 2010 budget.

The IRS has also seen its staffing levels drop to the same level as in 1973, despite millions more returns to be processed and additional mandates to be filled. In March, the IRS announced that it plans to hire 10,000 employees to help it fill a backlog of 20 million unprocessed tax returns.

President Joe Biden and Congressional Democrats have proposed investing $80 billion in new technology and more auditors at the IRS to increase tax revenue by $700 billion over 10 years. Republicans say the agency failed to provide adequate evidence of the size of the “tax gap” — or the amount of uncollected taxes — and was prone to data leaks and inefficiency.

The decline in funding and accountants means that taxpayers, and particularly the top earners, are far less likely to be caught underpaying their taxes than they were a decade ago. Overall audit rates for American taxpayers fell from 0.9% in 2010 to 0.2% in 2019.

The rich are still taxed at a higher rate than the general taxpayer population. However, their exam rates have declined much more sharply. The audit rate for taxpayers with incomes between $5 million and $10 million fell from 13.5% to 1.4%.

For earners greater than $10 million, the audit rate fell from 21.2% in 2010 to 3.9% in 2019, while audit rates for earners over $10 million in tax years 2017 and 2018 increased by mandate the Treasury Department to impose a scrutiny raised interest rates slightly by at least 8% for those earning $10 million or more.

“This is further evidence of the fallout of two decades of IRS budget cuts,” said Howard Gleckman, senior fellow in the Urban-Brookings Tax Policy Center at the Urban Institute. He added that given the staff shortages and IRS backlogs during the pandemic, “I suspect 2020 was far worse.” Tax audits of the super-rich IRS have plummeted for over a decade, a government report says

Gary B. Graves

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