IRS Audited ‘Many Low-Income Families’ in 2022
The IRS audited “many low-income families” in 2022, while millionaires largely escaped such scrutiny, according to a new report.
The findings are part of a recent analysis by the Transactional Records Access Clearinghouse (TRAC) at Syracuse University, which scrutinizes federal enforcement, staffing and spending.
TRAC based its findings on internal IRS reports it obtained through a federal court order that stemmed from a Freedom of Information Act lawsuit.
During the 2022 fiscal year, more than 164 million individual income tax returns were filed, with the IRS auditing 626,204 of them.
Low-income taxpayers took the brunt of that scrutiny. According to TRAC:
“The taxpayer class with unbelievably high audit rates — five and a half times virtually everyone else — were low-income wage-earners taking the earned income tax credit.”
The earned income tax credit is a refundable credit for lower-income workers.
The audit rate among all individual taxpayers in fiscal year 2022 was 0.38%. Meanwhile, among taxpayers who receive the earned income tax credit, the audit rate was 1.27%.
TRAC contends that low-income taxpayers fall into the IRS’ crosshairs more often “not because they account for the most tax under-reporting, but because they are easy marks in an era when [the] IRS increasingly relies upon correspondence audits yet doesn’t have the resources to assist taxpayers or answer their questions.”
Correspondence audits are largely automated processes in which letters are sent to taxpayers requesting more documentation about specific matters. The vast majority of audits the IRS conducted in 2022 were correspondence audits — more than 500,000 out of the 626,000 — rather than traditional audits conducted by IRS personnel.
Meanwhile, the odds of a millionaire being audited by an IRS revenue agent last year were a scanty 1.1% — although it’s important to note that if you include wealthy folks who received a letter asking for more documentation on a specific item, the odds of a millionaire hearing from the IRS rose to 2.8%.
TRAC concludes that severe budget cutbacks have prevented the IRS from auditing more millionaire returns. It says audits of millionaires fell to 11,331 in fiscal year 2020, down from 40,965 a decade ago.
Budget constraints should be less of a problem now that Congress has approved around $80 billion in additional spending for the IRS via the Inflation Reduction Act, which the president signed into law in August 2022. However, TRAC notes that many critics are concerned that the extra funding could result in more IRS agents going after middle-class taxpayers instead of millionaires and others.
Money Talks News reached out to the IRS for comment in this story but did not receive one.
However, in an 2022 letter to the U.S. Government Accountability Office, Douglas O’Donnell, who was then the IRS’ deputy commissioner for services and enforcement and is now the IRS’ acting commissioner, noted that:
- The IRS is “subject to the Payment Integrity Information Act (PIIA), which requires the IRS to conduct an annual risk assessment to identify programs and activities that may be susceptible to significant improper payments and to report on actions we plan to take to prevent future improper payments. EITC [earned income tax credit] is one such program.”
- Audits of taxpayers who claim the EITC are quick — averaging “approximately five hours per return” — while “the typical audits for higher-income taxpayers … routinely take years to resolve.”
For more on how IRS audits often impact those on the lower end if the income scale, check out:
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