The IRS has dramatically cut back on audits of the wealthiest Americans over the last decade and the poorest taxpayers are now audited at a higher rate than the middle class, Congress’s chief watchdog reported Tuesday.
Every income level is seeing fewer audits, the Government Accountability Office reported, but the biggest drops have come for those at the middle and upper income levels.
The IRS said that’s because it’s facing staffing shortages and it’s much easier to audit lower-income returns, which aren’t as complex.
The result is that those reporting less than $25,000 in income in 2019 got audited at a rate of 40 in 10,000, while those making $25,000 to $500,000 got audited at just 17 out of every 10,000, GAO said.
Those making $5 million or more, meanwhile, were audited at a rate of 235 per 10,000. But a decade earlier, they were audited at more than 1,600 out of 10,000.
Meanwhile, taxpayers who claimed the Earned Income Tax Credit, an anti-poverty program embedded in the tax code, were audited at a rate of 77 per 10,000, GAO said.
Rep. Bill Pascrell, chairman of the House Ways and Means Committee’s oversight panel, called the findings a “five-alarm fire bell for our national tax system.”
“Over the last decade, accountability for the wealthiest tax cheats has plummeted so far it almost hits the floor,” he said. “Americans’ confidence in their tax system will itself continue to collapse so long as the rich do whatever they want.”
The IRS told GAO investigators that it has been starved of cash over the last decade, causing its audit rates to drop overall, from about 90 per 10,000 in 2010 to 25 per 10,000 in 2019, the most recent year for which data was available.
High-income taxpayers still get audited at higher rates than returns at the low and middle levels, but they’ve seen the sharpest drop in their rates.
The IRS blamed staffing and changes in tax filing that make upper-income returns tougher to go through.
Indeed, it takes twice as long to audit an upper-income return now than it did a decade ago. But audits for those making under $200,000 take roughly the same time as before, the GAO concluded.
“Because audit staffing has decreased, IRS cannot conduct as many of these audits, compared to lower-income audits which are generally less complex and involve more automated processes,” the GAO said.
One factor boosting audit rates at the low end is the Earned Income Tax Credit, which goes to the working poor.
Those were audited at nearly twice the rate of the average filer making less than $25,000, and more than four times the rate of those making $25,000 to $500,000.
The IRS said reviews of returns claiming EITC are easy to do because they are limited in scope and “less time consuming.” And the EITC is rife with fraud and wrong payment calculations, making it an obvious target for audits, the agency said.
When agents do audit EITC returns, they find the average taxpayer to be $5,000 in arrears.
Audits of those making $25,000 to $200,000 don’t amount to much more, with the IRS finding those taxpayers came up an average of $6,565 short. Rates quickly grow from there, with those making $500,000 to $5 million docked nearly $47,000, and those making $5 million or more facing a $284,810 tax bill.
Overall, about 60% of upper-income returns are found to be in arrears. That’s up from less than 40% in 2015.
Lower-income tax filers are also facing more frequent bills.
“IRS officials explained that the no-change rate has generally decreased because as IRS does fewer audits, it tends to select returns for audit that have the highest chance of resulting in changes,” the GAO said.
