Audits of High-Income Earners Potentially on the Rise

The Treasury Secretary recently informed the IRS they need to increase audits on the high-income earners.

Tax audit trends over the last few years have taken an interesting turn as the microscope has tilted towards lower-income taxpayers, particularly those claiming the Earned Income Tax Credit.

The agency has been under fire over the increase of its audit rate with the lower-income segment while the rate for the higher-income has dropped significantly. Proposed funding for 2021 would help fuel the increase in audits for wealthy taxpayers.

Sources have said that there has been a noticeable decrease, since 2018 in the number of audits for those at the top of the income scale. This was largely due to the increased complexity and resources needed for high-income examinations.

“I have specifically directed the IRS commissioner to come up with a plan to increase the amount of funding so that we can audit more high-income earners, so that is specifically in our plan,” Mnuchin told lawmakers at a March 3rd Ways and Means Committee hearing.

Mnuchin was responding to questions about President’s 2021 budget request and disparities between audit rates on lower and higher-income taxpayers.

Currently the IRS funding totals approximately $11.5 billion. With the new proposed budget for 2021, that number would increase to $12 billion with funding for overall improvements, including tax enforcement programs; along with continuation of the modernization efforts, for which $300 million is slated specifically.

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