IRS enforcement efforts collect $520 million from wealthy taxpayers

The IRS has collected $520 million in taxes owed by millionaires since mid-2023 as it continues to ramp up new enforcement initiatives that focus on high-income taxpayers, complex partnerships, and large corporations, Commissioner Danny Werfel said Thursday in a call with reporters.

Most recently, the IRS collected $360 million from enforcement efforts concentrated on taxpayers with over $1 million in income and over $250,000 in recognized tax debt, Werfel said. This amount is in addition to the $122 million in tax the Service reported in October it had collected and the $38 million announced in July, Werfel said.

“The IRS continues to be focused on going after the wealthiest people in organizations who are evading some of the basic tax responsibilities while average working people who receive a paycheck are complying with the law,” Werfel said.

The call was the third quarterly update call that Werfel and Treasury have held to publicize how the IRS is spending its allocation from the Inflation Reduction Act of 2022, P.L. 117-169, as an effort to maintain both that funding and an annual allocation.

“For this progress to continue we must maintain reliable, consistent annual appropriations for our agency, as well as keeping Inflation Reduction Act funding intact,” Werfel said.

Other enforcement actions described by Werfel include:

• As of the end of October 2023, the IRS had sent 480 compliance alerts to partnerships with over $10 million in assets that had balance sheet discrepancies between end-of-year balances and beginning balances for the following year.
• The IRS has leveraged artificial intelligence (AI) to ramp up audits of 76 of the largest partnerships, including hedge funds, real estate investment partnerships, publicly traded partnerships, large law firms, and other industries. On average, these partnerships have over $10 billion in assets.
• As of mid-November, the IRS had sent compliance alerts to over 180 subsidiaries of large foreign corporations that distribute goods in the United States and use transfer-pricing rules to avoid reporting the correct amount of U.S. profits.
• The IRS has expanded the Large Corporate Compliance program by adding 60 audits of the largest corporate taxpayers selected using AI and subject matter expertise in areas such as cross-border issues and corporate planning and transactions, the result of adding new accountants in early 2024. Corporate taxpayers in the LCC program have average assets of over $24 billion and average taxable income of about $526 million a year.
• The IRS has audited over 80 wealthy partners to ensure that they are reporting and paying Self-Employment Contributions Act (SECA) taxes. The Service is targeting partners who provide services in certain partnerships and who inappropriately claim to qualify as “limited partners” that are not subject to SECA tax. 

Werfel also discussed improvements in customer service and modernization. For example, taxpayers who call to ask questions about refunds and amended returns will be greeted by voice bots using natural language rather than following menu prompts, he said.

And by the end of February, the IRS will have replaced scanning equipment that is older than five years and mail-sorter machines in the six highest-volume locations. As of the end of December, the IRS had scanned over 1.5 million forms during the 2023 calendar year.

— To comment on this article or to suggest an idea for another article, contact Martha Waggoner at Martha.Waggoner@aicpa-cima.com.