IRS hauls more than $1B in back taxes from ultra-high earners

The tax man has come for a lot of rich Americans.

The IRS has announced it has successfully collected $1 billion in overdue taxes from wealthy individuals since 2023, a haul that came as part of an initiative targeting high-income earners who have evaded paying their tax obligations.

In a statement Thursday, the federal tax agency said it focused on approximately 1,600 individuals, each with incomes of at least $1 million and recognized tax debts exceeding $250,000.

“With this collection activity, the IRS passed an important milestone in our effort to improve compliance and ensure fairness in the tax system,” IRS Commissioner Danny Werfel said.

This initiative stands out due to its significant return on investment. According to calculations by Forbes, the average tax levy from these individuals amounted to $625,000, far surpassing the average return of $54,000 adjustments typically obtained through standard audits.

“Efforts to increase tax fairness and bring in revenue from high-end taxpayers who have not paid what they owe are already paying off to the American people,” Treasury Secretary Janet Yellen said in a briefing, as per the New York Times.

The IRS cited other areas where it’s intensifying its scrutiny of various forms of tax evasion and abuse of resources. This includes the misuse of corporate jets for personal travel, audits on 76 of the largest partnerships in the US which include hedge funds and REITs, and its recent efforts to combat “abusive partnership transactions” that it said enable wealthy taxpayers to avoid paying what they owe.

In addition to the $1 billion already collected, the tax agency highlighted its recently announced effort to identify and collect tax from over 100,000 Americans in the $400,000 to $1 million income range, and more than 25,000 people above the million-dollar mark. Those groups, it said, represented a massive scale of delinquency spanning more than 125,000 instances of failure to file federal income tax since 2017.

According to Werfel, the agency hasn’t been able to go after taxes it knew was owed in recent years because years of funding declines left it short-staffed and under-resourced.

Its latest efforts have been fueled by a budgetary expansion under the Inflation Reduction Act of August 2022, which initially allocated $80 billion to the IRS for modernization. Those purse strings have tightened as a result of political negotiations, but that still left the agency some $60 billion.

“Funding from the Inflation Reduction Act is reversing a decade-long decline in our compliance work, including increasing our compliance work involving the wealthiest individuals and groups with tax issues,” he said, adding that the agency’s also investing in improved services for taxpayers in general.

“We continue working to add staff and technology to ensure that the taxpayers with the highest income, including partnerships, large corporations and millionaires and billionaires, pay what is legally owed under federal law,” Werfel said.

The IRS says if the investments under the Inflation Reduction Act continue, the agency could potentially collect as much as $851 billion in revenue over the next decade. The initiative has so far utilized only $5.7 billion, or 10 percent, of its allocated funding, according to a June report by the Treasury Inspector General for Tax Administration.