IRS recoups $1 billion from wealthy tax evaders as it faces potential budget cuts

The Internal Revenue Service (IRS) is flexing its muscle, announcing a $1 billion recovery in unpaid taxes from high-income individuals while budget cuts loom on the horizon.

IRS Commissioner Danny Werfel called the recovery a significant milestone. "These past-due tax bills from high-end taxpayers are no longer being left on the table, as they often were in the past," Werfel said

Since last year, the IRS has intensified its focus on individuals with incomes exceeding $1 million and recognized tax debts of over $250,000.

In an interview with the Washington Post, Werfel indicated that these substantial tax bills weren't even in dispute. The agency simply lacked the manpower and resources to collect them without the $80 billion boost from Biden’s Inflation Reduction Act.

Treasury Secretary Janet Yellen called the billion-dollar collection "a major success." "This ensures that all wealthy taxpayers pay their fair share, just like working families do," Yellen said in a statement.

Debt ceiling deadline looms

The IRS collection announcement comes just weeks before the August 2nd debt ceiling deadline.

In last year's debt ceiling talks, Republicans secured a $1.4 billion reduction in the IRS budget, along with an agreement to redirect $20 billion from the agency over two years.

This timely demonstration of what the IRS can do seems designed to ward off potential further cuts as lawmakers prepare for another round of budget discussions.

Eugene Steuerle, a fellow and co-founder of the Urban-Brookings Tax Policy Center, said if the IRS “can show they’re having a positive impact and it’s not impacting average American taxpayers, there would be more public support for this activity and the agency.”

However, the vice president of research at the National Taxpayers Union Foundation claims IRS efforts are affecting the average American taxpayer.

“Nearly two-thirds of audits initiated in 2023 were on those making less than $200,000,” said Demian Brady.

Tax loopholes are closing

The IRS seems bent on proving they’ve made good use of their money, intensifying efforts to close tax loopholes and enhance overall tax system fairness.

Its crackdown is on multiple fronts: scrutinizing corporate jet usage, examining the 60 largest corporate taxpayers, and addressing complex practices like "partnership basis shifting."

Partnership basis shifting, a sophisticated tax maneuver, allows partners to manipulate their interests to minimize taxable gains or maximize deductible losses.

Treasury estimates suggest that tackling this issue alone could generate over $50 billion in additional revenue over the next decade. However, Republicans might rain on their parade.

The GOP’s fiscal year 2025 proposal suggests further cuts to the IRS budget.

These proposed reductions would also affect newer initiatives like the Direct File program, which allows eligible taxpayers in 13 states to file returns directly with the IRS at no cost.