IRS Commissioner Daniel Werfel repeated his claim on April 27th that the tax agency will not increase audit rates beyond that set in 2018 for taxpayers earning less than $400,000 a year.
“The audit rate will not go above that audit rate for years to come,” Werfel said, during a House Ways and Means Committee hearing on the IRS.
Percentage of 2018 returns examined by IRS, according to the tax agency:
- 7.8%, taxpayers with no reportable income,
- 0.4%, taxpayers with taxable income between $1 and $25,000,
- 0.3%, taxpayers with taxable income between $25,000 and $50,000,
- 0.2%, taxpayers with taxable income between $50,000 and $75,000,
- 0.2%, taxpayers with taxable income between $75,000 and $100,000,
- 0.2%, taxpayers with taxable income between $100,000 and $200,000,
- 0.3%, taxpayers with taxable income between $200,000 and $500,000.
Werfel stressed that the IRS audit rates will not rise above these percentages for years to come.
“I think there can be assurance for the American people that if you are under $400,000…the probability of being audited are not changed at all,” he said.
Important to note: Just because the audit rate will not rise for these taxpayers doesn’t mean that no one within these income levels will get audited. For example, according to the 2018 audit rate, 4 out of 1,000 taxpayers earning between $25,000 and $50,000 were audited.
Werfel said that tax enforcement will focus on wealthier taxpayers, but the odds of catching any cheating is low because the tax agency simply does not have enough employees.
“On the enforcement side…today, we have 2,600 IRS employees that are responsible for accessing the most wealthy taxpayers… individuals, large corporations and complex partnerships,” Werfel said. “There are roughly 390,000 of these wealthy taxpayers.”
For taxpayers earning between $5 million and $10 million, the audit rate was 1.2% in 2018. For those earning over $10 million, the 2018 audit rate was 9.2%. These audit rates are likely to increase.
“When you see our staffing numbers over the next ten years… I ask you to think about what we are doing is closing the Tax Gap when you talk about enforcement between those 2,600 employees and the 390,000 wealthiest filers in America,” Werfel said.
Prior Eide Bailly coverage of Werfel and IRS audits:
The IRS will focus its audits on high wealth individuals and businesses.
We will ‘deliver more effective enforcement of tax laws that apply to high income taxpayers, large corporations, and complex partnerships which do not pay the taxes they legally owe,’ Werfel told the Senate Finance Committee.
Roughly $45 billion of the $80 billion that Congress bestowed to the IRS through the IRA goes to enforcement.