IRS audits may start to target more wealthy taxpayers
The IRS might soon be looking to makeover its auditing tactics.
That’s according to IRS Commissioner Charles Rettig, who told lawmakers that he wants to work with Congress to focus more on wealthier taxpayers.
Rettig was questioned about why lower-income Americans, specifically those applying for the Earned Income Tax Credit (EITC), which is designed to subsidize working families with low-to-moderate incomes, are disproportionately targeted by IRS audits.
People who claimed the EITC were twice as likely to be audited than those with incomes between $200,000 and $500,000, according to ProPublica. These people accounted for 36 percent of all audits in 2017.
Rettig explained that complications related to the EITC arise because of the definition of what constitutes a qualifying child. Children must meet certain relation, age, residency and other requirements in order to qualify.
He referred to the tax credit as a “very complex part of the internal revenue code.”
The result, the IRS head said, is that about 25 percent of claims are audited, which still results in a net overpayment of more than $18 billion.
Rettig acknowledged this is one area where he would “like to work with Congress a lot,” to get “audit rates up for more wealthy taxpayers.”
To do that, the agency would take a stronger look at issues and trends among higher-income returns, including pass-through examinations. He added that pass-through audits could be streamlined, and different questions could be asked.
In 2017, the IRS screened just 0.62 percent of individual returns. It was the sixth consecutive year of decline. Of high-income households, which are expected to be audited at a higher rate, just 4.37 percent of returns were reviewed, while the rate for taxpayers with incomes below $200,000 was 0.59 percent. Business audits also dropped.
The number of auditors working at the agency has also dropped about 30 percent since 2010, falling under 10,000 for the first time since 1953, to 9,510 in 2017.
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The agency also has fewer resources to go after negligent taxpayers.
The number of nonfilers pursued dropped to 362,000 in 2017, from 2.4 million in 2011, ProPublica reported.
Experts have told FOX Business that at some point, a lack of enforcement is going to affect the probability of noncompliance.