IRS targeted low-income families while overlooking millionaires in 2022, says report

The IRS targeted mostly low-income families for audits while largely steering clear of high-income earners in fiscal year 2022, according to a report from Syracuse University’s Transactional Records Access Clearinghouse (TRAC). 

TRAC analyzed data it received from the IRS and found that despite the Biden administration earmarking $80 billion last year for the IRS to aggressively audit the rich, the agency preyed on lower-income brackets who were collecting earned income tax credits. 

In fact, the report says the IRS subjected low-income taxpayers to “unbelievably high” audit rates — over five times more than nearly everyone else. On the other hand, just 1.1% of millionaires — those who earned a million dollars or more in positive income — were audited. 

Despite its large cash infusion from the federal government — enough to hire 87,000 new employees — the IRS found it easier to conduct correspondence audits through the mail, which is more feasible with lower income tax returns. Such audits are automated and usually begin with a letter from the IRS asking the taxpayer for more documentation. In FY 2022, 85% of all 1040 audits began with such a letter, as did 48% of millionaire audits. 

The report explains that lower-income wage-earners “are easy marks in an era when IRS increasingly relies upon correspondence audits yet doesn’t have the resources to assist taxpayers or answer their questions.” 

While the chance of a millionaire being audited increased to 2.8% last year, this still left nearly 700,000 millionaires to escape scrutiny. 

TRAC obtained the IRS data following a court order under the Freedom of Information Act which forced the agency to submit monthly management reports to the university.

While Biden pledged last year not to increase taxes for anyone making less than $400,000 per year, the Inflation Reduction Act 2022 included a corporate tax which is expected to hit the middle and lower classes hard.  

“As a result of the policy, those with incomes below $200,000 would pay almost $17 billion in combined additional tax in 2023, according to a Joint Committee on Taxation analysis published July 29,” reported NBC. According to the analysis, only 4%-9% of tax revenue from the Act’s $80 billion investment will come from businesses making above $500,000. 

“The IRS will have to target small and medium businesses because they won’t fight back,” National Taxpayers Union Foundation Executive Vice President Joe Hinchman told The New York Post.  

“We’ve seen this play out before … the IRS says ‘We’re going after the rich’ but when you’re trying to raise that much money, the rich can only get you so far.”  

Hinchman explains that the IRS typically goes after small and medium businesses because they don’t have the financial bandwidth to challenge the agency in court.  

“The approach here is to double the IRS workforce, take the leash off, and see how much they can collect,” Hinchman added. “I think they’ll collect it but it will be quite painful.”