Is The IRS Finally Taxing Rich People?... Well Sort Of

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Last week the IRS announced that they would be going after one hundred and twenty-five thousand [125,000] Americans who according to their records earned over four hundred thousand dollars [$400,000] a year… but didn’t file tax returns.
The result of this activity could be worth as much as one hundred BILLION dollars as Uncle Sam goes after people who haven’t paid taxes since 2017.

This is great because everybody should be paying their fair share, but, if the IRS knew these people were cheating the system, then… why has it taken them so long to finally do something?
The IRS may seem like an all powerful bogeyman but the reality is that the department is underfunded, undermanned and having to make tough decisions about what kind of work will deliver the greatest return on its limited resources.

The IRS has continuously been defunded by politicians on both sides of the isle. Simultaneously the tax code has become more complex allowing sophisticated filers with high incomes from multiple sources to file deductions, offsets, credits, exemptions and deferments on their returns. The only way to fully verify these filings are being made correctly is for a trained tax agent to assess them individually but the IRS just doesn’t have the manpower to do that, so for most complex returns it has been accepting the honestly of the filings.

The IRS simply has to make budget decisions based on what is going to give them the greatest return on their investment and that is by going after easy targets. According to a report by pro publica a person earning twenty thousand dollars [$20,000] a year is now more likely to be audited by the IRS than someone earning four HUNDRED thousand dollars [$400,000] a year.
The Earned Income Tax Credit has been a particular focus of the department because it is a bonus paid to people on low incomes that is simple to claim when filing your taxes.

BUT if the IRS audits your claim it’s up to YOU to prove that you did legally qualify for this credit.

The maximum that a single person can earn to qualify for this credit is just seventeen thousand six hundred and forty dollars a year [$17,640]. This range extends up to sixty-three thousand three hundred and ninety eight dollars [$63,398] for a married couple with three or more children. If you qualify for this credit, you will not have the time or money to fight an audit so the IRS knows you are likely to just give up and pay them what they tell you to. Within the department this means that Earned Income Tax Credit audits have the highest likelihood of success which is why they continue to focus on them.

But if IRS staff are already spread so thin, instead of focusing on getting back a few hundred dollars from millions of poor working Americans, surely it would be easier to get back millions of dollars from just a handful of rich people right? Wrong. The recent announcement that the IRS will be going after non-filers with incomes as high as one million dollars [$1,000,000] a year might sound like a step in the right direction, but there are three simple reasons why it has taken so long and why it’s unlikely to achieve what you hope it to achieve.

So it’s time to learn How Money Works to find out why it took the IRS so long to finally go after millionaires and why it probably won’t change anything.