New Report Claims Millionaires Dodged $2.4 Billion in Income Tax

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Not even the IRS is safe from audit. The Treasury Department’s Inspector General reviewed the IRS’s procedures and found that a failure to audit and collect taxes from the wealthiest Americans is leading to a $38.5 billion uncollected balance.

See: What the Richest 1% Pay in Taxes in Your State
Find: Rich Americans’ Estate Taxes Are Safe Under Biden — for Now

The biggest collection problems occur with audited taxpayers making $1.5 million a year or more, who have an estimated $2.4 billion in delinquent taxes. The IRS collects only 39% of the money owed by these taxpayers in the first year of entering collections, even though they are likely to have the funds to pay off their balance. 

One of the problems is that the IRS doesn’t use income to target people for audit. Instead, it often flags people based on the dollar amount of taxes paid or the types of deductions that they take. Then, collectors concentrate on the amount owed more than the ability to repay it, the inspectors found. The average balance for taxpayers in this income bracket is less than $25,000, a small amount relative to their income.

See: 23 Celebrities Convicted of Tax Evasion
Find: Billionaires vs. the Middle Class Across America – Who Pays More in Taxes?

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The report even has a money quote: “High-income taxpayer noncompliance can have a significant corrosive effect on overall tax administration as well as add to the belief that the Nation’s tax system favors the wealthy.” 

Changing the priorities for audit and collection could generate more money for the government by simply getting people to pay what they owe. Interest rates are extremely low, which makes the interest charges for late payments also low.

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About the Author

Ann Logue is a writer specializing in business and finance. Her most recent book is The Complete Idiot’s Guide: Options Trading (Alpha 2016). She lives in Chicago.
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