The IRS Focused on Auditing Low-Income Earners Over Millionaires

The IRS Focused on Auditing Low-Income Earners Over Millionaires Last Year: Report
By: Mary Ellen Cagnassola
4 min read

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More money, more problems, right? Not with the IRS, according to a new report that suggests the wealthy overwhelmingly escape audits.

Syracuse University’s Transactional Records Access Clearinghouse (TRAC), a nonprofit data and research gathering organization, found in a review of monthly IRS management reports that only 1 in 100 millionaires was audited by an IRS revenue agent last year. Out of the 703,576 tax returns filed in 2022 reporting an income of at least $1 million, roughly 689,000 faced no IRS inquiry.

To put that into context: A decade ago, the IRS audited 40,965 returns filed by millionaires, TRAC says. That number fell by nearly 75% to a bottom of 11,331 in 2020.

TRAC said for those who did come under IRS scrutiny in 2022, automated correspondence audits — or letters asking for more documentation on a specific item via mail — mostly replaced more thorough in-person audits. Eighty-five percent of all audits of 1040 returns (the standard form filed by individual taxpayers) were conducted by mail in 2022.

One group, however, was not as lucky as the rich in avoiding the long arm of the IRS, even with funding and staffing challenges in recent years.

Low-income families, according to the nonprofit, had a 1.27% audit rate — higher than that of millionaires when correspondence audits were removed from the picture.

“While these small differences may sound trivial, the difference represented tens of thousands of low-income families,” TRAC said in its report. “And the question remains, should these low-income families be the ones targeted when millionaires are responsible dollarwise for most tax underreporting?”

Low-income wage earners who earn under $25,000 annually and claim the Earned Income Tax Credit were five and half times more likely to be audited than other taxpayers. TRAC also said these taxpayers have a history of being targeted because they are “easy marks,” especially at a time when the IRS is increasingly relying on automation and has fewer resources to assist taxpayers.

TRAC said transparency is more important than ever now that the IRS will receive an infusion of $80 billion over the next decade, in part to crack down on wealthy tax evaders, from the 2022 Inflation Reduction Act. More than $45 billion is earmarked to increase audits and help close the $600 billion deficit between the taxes collected by the agency and what it's owed, a decision lambasted by congressional Republicans who say it will also increase audits on everyday taxpayers.

Former IRS Commissioner Charles P. Rettig dismissed those concerns in letters to Congress in August 2022, saying that audits on taxpayers making less than $400,000 a year would not increase. Nevertheless, new House Speaker Kevin McCarthy, R-Calif., has vowed to repeal the funding as one of his first orders of business.