The passage of the Inflation Reduction Act in 2022 marked a significant effort by President Joe Biden and Democrats in Congress to address tax evasion and bolster government revenue. This legislation provided substantial funding to the Internal Revenue Service (IRS), empowering it to pursue corporations and wealthy individuals who may have been avoiding their tax obligations.
However, despite these efforts, the IRS revealed concerning findings regarding tax non-compliance among high-income earners. Around 125,000 notices are being sent to individuals who failed to file tax returns for at least one year between 2017 and 2022. These individuals, earning over $400,000 annually, represent a segment of the population that has deprived the government of hundreds of millions of dollars in tax revenue.
Importantly, these cases do not involve individuals exploiting legal loopholes or engaging in complex tax avoidance strategies. Instead, they highlight a failure to fulfill the fundamental civic duty of paying taxes. Approximately one-fifth of these non-compliant individuals earn over $1 million annually, further underscoring the magnitude of the issue.
IRS Commissioner Danny Werfel emphasized the significance of addressing this form of non-compliance, particularly during tax season when millions of hard-working individuals fulfill their tax obligations. He characterized the failure to file tax returns among high-income earners as a form of tax evasion, emphasizing the need for enforcement actions to uphold tax fairness and integrity.
The recent actions taken by the IRS reflect a broader initiative to ensure tax compliance among high-income individuals and corporations. One significant measure involves scrutinizing private jet usage to determine if executives are exploiting tax deductions by using corporate jets for personal purposes.
However, the IRS’s ability to enforce tax laws effectively has faced challenges, particularly due to efforts by Republicans to limit the agency’s resources. Last June, Republicans successfully advocated for $20 billion in cuts to the IRS as part of a debt limit bill. This decision was later reinforced in January when Democrats, seeking to avert a government shutdown, agreed to a spending bill that removed the entire $20 billion allocation from the IRS’s budget for the current fiscal year.
The consequences of these budget cuts are concerning. A recent report by the nonpartisan Congressional Budget Office projected that the $20 billion reduction in the IRS’s budget would exacerbate the national deficit by $24 billion. This outcome underscores the importance of adequately funding the IRS to enable it to fulfill its crucial role in ensuring tax compliance and safeguarding government revenue.