IRS Touts $1 Billion in Past-Due Collections from High-Net-Worth Taxpayers

In a recent News Release, the Internal Revenue Service (IRS) touts its efforts to collect past-due taxes from high-net-worth taxpayers. According to the News Release, which the IRS published on July 11, 2024, the IRS “has surpassed the $1 billion mark in collections from high-wealth taxpayers with past-due taxes” since it began ramping up its enforcement efforts under the Inflation Reduction Act of 2022. Learn more from Texas IRS dispute lawyer Lawrence Brown:

The IRS Has “Stepped Up” Its Efforts to Target High-Net-Worth and High-Income Taxpayers

As the IRS’ News Release also explains, the agency has “stepped up” its efforts to target high-net-worth taxpayers—in particular, those who earn more than $1 million per year and owe more than $250,000 in recognized tax debt. The IRS attributes a substantial portion of the federal government’s longstanding tax gap to these taxpayers, and, with a recent shift in focus, the IRS is now prioritizing enforcement cases with the greatest expected return. According to the IRS, the $1 billion it has collected since stepping up its efforts has come from just 1,200 individuals—which means that those targeted had an average tax debt of more than $800,000.

The IRS’ News Release also notes that the agency singled out 1,600 taxpayers for collection under its initiative—which means that 400 or so are still facing (or will soon face) scrutiny from revenue agents tasked specifically with uncovering and collecting substantial tax debts. However, the IRS’ focus on high-net-worth and high-income taxpayers is much broader and is by no means a one-time event. As the News Release explains:

“The IRS has a variety of other efforts underway to improve tax compliance in overlooked areas where the agency did not have adequate resources prior to Inflation Reduction Act funding.

“Earlier this year, the IRS announced a new effort focused on high-income taxpayers who have failed to file federal income tax returns in more than 125,000 instances since 2017. . . . The new initiative involves more than 25,000 people with more than $1 million in income and over 100,000 people with incomes between $400,000 and $1 million between tax years 2017 and 2021.”

Under the Inflation Reduction Act of 2022, the IRS received substantial additional funding, much of which it is devoting to enforcement and collection. This represents a significant shift from the recent past, when “more than a decade of budget cuts prevented the IRS from keeping pace with the increasingly complicated maneuvers that the wealthiest taxpayers use to hide their income and evade paying their share.” As a result, we anticipate that the efforts touted in the IRS’ News Release are just the beginning of a substantial and long-term shift toward prioritizing high-net-worth and high-income taxpayer accountability.

The IRS is Relying on Third-Party Sources to Identify High-Net-Worth and High-Income Taxpayers for Enforcement

Another key takeaway from the IRS’ News Release is this: The IRS’ high-income non-filer enforcement cases, “are all cases where the IRS has received third party information—such as through Forms W-2 and 1099s—indicating these people received income in these ranges but failed to file a tax return.” The IRS has made clear that it is relying heavily on third-party sources in other high-net-worth and high-income taxpayer enforcement initiatives as well, including those involving cryptocurrency.

As a high-net-worth or high-income taxpayer, what does this mean for you? The short answer is that you must be very careful to ensure that you accurately disclose your holdings and income to the IRS in accordance with federal law. If you have not fully met your disclosure obligations in the past, this could soon catch up with you, and taking action proactively could be critical for avoiding an extremely high-stakes IRS audit or investigation. While submitting an amended or delinquent filing may make sense in some cases, many taxpayers will need to consider other options—including submission of a voluntary disclosure to IRS Criminal Investigation (IRS CI).

Specific Areas of Focus in IRS Audits and Investigations Targeting High-Net-Worth and High-Income Taxpayers

The IRS’ July 11, 2024 News Release also identifies three specific areas in which it intends to focus its efforts to target high-net-worth and high-income taxpayers. These focus areas are:

• Abusive use of partnerships to hide income and evade federal income tax responsibility;
• Tax fraud and tax evasion committed by hedge funds, real estate investment partnerships, publicly traded partnerships, large law firms, and other large entities and their personnel; and,
• Fraudulent deductions involving personal use of corporate-owned and partnership-owned aircraft by high-income taxpayers.

These add to the list of priority enforcement areas that the IRS has previously identified over the past dozen or so months. Along with abusive use of partnerships, large entity tax fraud and tax evasion, and aircraft use, the IRS is also prioritizing enforcement with respect to:

• Cryptocurrency and other digital assets;
• Fraudulent Paycheck Protection Program (PPP) and Employee Retention Credit (ERC) claims;
• Mischaracterization of income and improper use of like-kind exchanges;
• Offshore bank accounts and other foreign financial assets; and,
• Syndicated conservation easements and other abusive tax shelters.

Again, for high-net-worth and high-income taxpayers who have concerns in these (or other) areas, a proactive approach is best. The IRS is leveraging its additional resources under the Inflation Reduction Act of 2022 to pursue collection at rates far exceeding what we have seen in the recent past. If you need advice, a Texas IRS dispute lawyer at Brown Tax, P.C. can help, and we invite you to contact us for more information.

Request a Confidential Consultation with Texas IRS Dispute Lawyer Lawrence Brown

If you need more information about the IRS’ efforts to target high-net-worth and high-income taxpayers in 2024 (or beyond), please contact us to request a confidential consultation. With offices in Fort Worth, TX, we represent high-net-worth and high-income taxpayers throughout the U.S. and worldwide. Call us at 888-780-0025 to speak with a member of our firm, or contact us confidentially online, and we will be in touch as soon as possible.