Bill Would Introduce IRS Audit Quotas Based on Income, Focusing on Wealthiest, Large Corporations

By:
Chris Gaetano
Published Date:
Feb 19, 2021
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A bill circulating in the House would turbocharge IRS enforcement of tax compliance of wealthy individuals and corporations, and give the agency $70 billion more to do it. The bill, called the Stop Corporations and High Earners from Avoiding Taxes and Enforce Rules Strictly Act (Stop Cheaters Act) was introduced by Rep. Ro Khanna (D-Calif.) as an updated version of last year's IRS Enhancement and Tax Gap Reduction Act.

IRS audits have become increasingly rare over the years, but this is especially the case for wealthier individuals and businesses. In 2018, for example, of the 504,278 returns filed from individuals worth $1 million or more, 16,305 were audited, the lowest it has been in close to a decade. The year 2012 saw the largest number of audits of millionaires since 2010: 40,965. Audit rates for the largest corporations have also dropped precipitously. Of the 633 firms with $20 billion or more in assets, 302, fewer than half, were audited in 2018. This is in stark contrast to 2010, 2011, and 2012, which saw audit rates of 96 percent, 94 percent, and 93 percent, respectively. Much as with individual audits, the report said that the IRS is likely missing billions in owed taxes.

The House proposal would require the IRS to meet certain annual enforcement targets. Specifically, the agency would have to audit the returns of:

* 50 percent of individuals making more than $10 million in total income
* 33 percent of individuals making $5 million-$10 million in total income
* 20 percent of individuals making $1 million-$5 million in total income
* 95 percent of corporations with more than $20 billion in assets
* 40 percent of returns with estates larger than $10 million
* 1.2 percent of returns reflecting taxes related to gifts
* 22 percent of tax returns filed by an employer with respect to employee compensation

Those who falsify their tax returns to pay less than is legally owed would face an additional fine of a percentage of the underpayment (20-24 percent depending on income).

The IRS would get $70 billion spread out over the course of fiscal years 2022-31 to fulfill these  requirements.

It would also require individuals whose taxable income is above $400,000 and who have received additional income from sources not previously disclosed to the IRS to disclose their business income on a new 1099 report. The report would also be required for all “pass-through” entities that had an ownership interest held by the individual taxpayers above $400,000 in annual gross income.

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