Nervous about your tax bill this year?
If you’re a millionaire, you can relax.
The number of millionaires audited by the Internal Revenue Service has dropped by 72 percent since 2012 as a result of staffing cuts to the tax agency, according to the Transactional Records Access Clearinghouse (TRAC) of Syracuse University.
The slump in audits comes as the ranks of millionaires nearly doubled over the same time period—suggesting that the government has failed to examine billions of dollars in additional taxable unreported income, TRAC said in a study released Thursday.
“Less than two out of every 100 taxpayers reporting over a million dollars of income were audited (in 2020), while the ranks of millionaires have nearly doubled since FY 2012,” TRAC said.
“With 98 percent of millionaires escaping any scrutiny, fewer audits in all likelihood means many millionaires escape paying billions of dollars owed the U.S. Treasury.”
TRAC attributed the decline to a startling 43 percent cut since 2010 in the number of IRS “revenue agents,” who have the expertise to examine complex tax returns.
As Americans brace for the annual tax season, even as the deadline for filing has been pushed back to May 17, few are likely to lose sleep over the agency’s financial woes.
But TRAC points out that underfunding the IRS weakens a key tool for addressing economic inequality. ‘
Since the 2008 recession, the wealthiest “one percent” of Americans were the only ones to significantly improve their economic status, but the IRS staffing cuts left the government “less prepared than in the past to evaluate whether wealthy individuals and businesses properly report their true incomes and pay taxes on these dollars,” TRAC said.
Basing its analysis on a study of internal IRS data, TRAC found that audits during 2020 uncovered just $1.2 billion in unreported taxes, compared to $4.8 billion in 2012.
There are 637,212 millionaires living in the U.S. In 2020, IRS agents investigated the returns of just 11,331 of them, down from 40,965 in FY 2012.
A similar drop in vigilance has allowed the largest U.S. corporations to escape the taxman’s scrutiny as well, TRAC said.
In 2012, the IRS audited 93 percent of the returns of corporations reporting over $20 billion in assets, and collected unreported taxes of $10 billion. But in FY 2020, the tax returns of nearly two out of three of the 755 largest U.S. corporations were unaudited.
Unreported corporate taxes assessed by the IRS accordingly dropped to $4.1 billion—half the 2012 assessment―even as most corporate giants continued to grow their revenues.
Not uncoincidentally, TRAC reported, the number of IRS criminal investigations reached an “all-time low” of 533 in 2020, with just 255 convictions for tax fraud―which also occurred in tandem with a 26 percent drop in the number of IRS criminal investigators over the past decade.
TRAC said the decline in IRS ranks resulted from stark budget cuts imposed by Congress over the past decade that have “undermined the agency’s ability to administer tax laws in a fair and effective manner,” even as it has been forced to cope with a greater workload.
The IRS now processes over 260 million individual and corporate returns, and its role is set to expand this year with its designation as the lead agency in charge of overseeing the vast $1.9 trillion stimulus program approved by Congress in February.
Critics warn that the agency is not equipped technologically to administer that level of responsibility.
The IRS is “morphing… into this dual mission of both tax administration and administering of social programs,” Erin Collins, who runs a independent watchdog group monitoring the agency, said in an interview with The Washington Post.
Although the IRS has rejected suggestions that it is not up to the job, critics argue that its ability to sniff out tax cheats will inevitably suffer.
In 2020, the agency employed just 8.350 revenue agents. Eight years earlier, there were 14,749, according to TRAC figures.
The cuts were driven in part by an ideological push—largely by Republicans—to overhaul what many considered to be the most unpopular agency in the U.S. government―and an example of big-government intrusion into the lives of Americans.
In 1998 a bill to repeal the internal revenue code was introduced by a Republican congressman. Sen. Ted Cruz (R-TX) campaigned on a platform to “abolish the IRS” when he ran for the presidency in 2016, and the agency came under sustained attack by then-President Donald Trump.
“I get treated very badly by the IRS, very unfairly,” said Trump, who now faces a potential criminal investigation connected with his own tax filings.
Last month, in testimony before the House Committee on Appropriations, IRS Commissioner Charles P. Rettig pleaded for “financial, staff, and training support.”
The IRS is not likely to win the sympathy of many Americans in its campaign for additional support, but TRAC argues that would be shortsighted.
“As public attention focuses on how the country can restore faith in our democratic institutions, one area that should not be overlooked is how the nation can better ensure that our income tax laws are fairly and effectively administered,” TRAC said.
The full report and tables can be downloaded here.
This summary was prepared by TCR executive editor Stephen Handelman