IG Report Challenges Biden’s Tax Audit Strategy, Favors Wealthy Focus

The IRS inspector general has released a new report that delivers a severe blow to President Biden’s strategy on tax audits. The report finds that targeting the wealthiest taxpayers nets a much better return on investment, putting a spotlight on Biden’s approach, which shifts the focus to auditing those with incomes starting at $400,000. Common sense, it seems, has once again been trumped by political grandstanding.

Under Trump-era guidance, the IRS was told to zero in on those raking in $10 million or more annually. This sensible approach has now been discarded by Biden, who apparently believes that taxing individuals with far less income will bridge the budget gap. The inspector general’s findings clearly tell a different story, indicating that audits of the ultra-wealthy are twice as productive per hour and yield four times as much per examination compared to those earning between $400,000 and $10 million.

It’s a head-scratcher why Biden’s administration refuses to follow the numbers. The inspector general’s report shows that the audits of returns with incomes over $10 million lead to significantly higher tax adjustments and collections. This logical focus on the most lucrative targets was thrown out the window when the Biden administration decided to lower the audit threshold to $400,000, deeming the Trump-era directive obsolete. Is this what passes for progress these days?

One must give credit where it’s due; the Small Business/Self Employed (SB/SE) division of the IRS has traditionally hit the mark, meeting audit goals for high-income earners in previous years. However, the Biden administration’s refocus led to a dip in these effective audits, falling below 3% by last fall. The administration’s argument? Bigger fish are still part of the plan, but the pool has been expanded to include more middle-tier taxpayers. It’s a classic case of saying a lot without doing much to hit the target effectively.

The backdrop for these changes is a massive influx of funding into the IRS, courtesy of the Democrats’ 2022 budget-climate law. This windfall was meant to boost tax compliance and send a clear message to wealthy taxpayers to pay up. Yet, the focus on lower-income thresholds dilutes the potency of targeted enforcement and could end up being a costly mistake for taxpayers and the government alike.

While Lia Colbert, commissioner of the SB/SE division, insists that the IRS continues to aim high, her dismissal of the inspector general’s recommendations casts doubt on their efficiency. Rather than sticking to solid auditing strategies that net real returns, the IRS seems more interested in broadening its scope without the sharp focus it needs. Is the administration’s shift really paying off, or is it just another example of penny-wise, pound-foolish policymaking? Only time, and taxpayers’ wallets, will tell.

Written by Staff Reports

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