IRS Unable to Fulfill Biden’s $400,000 Audit Pledge, Reports Inspector General

IRS Unable to Fulfill Biden’s $400,000 Audit Pledge, Reports Inspector General.The official watchdog for the Internal Revenue Service (IRS) has revealed that the IRS faces significant obstacles in delivering on President Biden’s promise not to increase audits on households or small businesses with an annual income of less than $400,000. The Treasury Inspector General for Tax Administration (TIGTA) recently released a report highlighting these challenges.

Identifying the $400,000 Threshold

According to the TIGTA report, the IRS lacks the means to accurately identify all taxpayers who meet the specified criterion of earning $400,000 or more. This finding casts doubt on the credibility of President Biden’s pledge.

Criticism from Taxpayer Advocacy

Grover Norquist, President of Americans for Tax Reform, commented on the report’s findings, stating that Biden’s $400,000 audit promise lacked credibility from the outset. He suggested that the Biden administration made this promise in its pursuit of expanding the IRS’s size and authority.

Outdated Definition of “High-Income”

The TIGTA report pointed out that the IRS’s definition of a “high-income” taxpayer has remained unchanged since 1976, when it was established at an annual income of $200,000. This definition has not been updated to reflect inflation or changing economic conditions.

Training Deficiencies

TIGTA also found that IRS employees responsible for conducting high-income examinations lacked clear guidance on identifying individual high-income taxpayers. The report highlighted deficiencies in training for revenue agents in this regard.

Calls for Updating Income Threshold

TIGTA recommended that the IRS update its definition of “high-income” taxpayers to align with the $400,000 threshold set by the Treasury Secretary. However, the IRS rejected this recommendation, asserting the need for flexibility to target taxpayers based on emerging issues and trends.

Importance of a Dynamic Definition

TIGTA emphasized that the definition of high-income taxpayers should not be static but should evolve based on economic and complexity factors. When thresholds are set too low, it leads to more audits but with less productive results, as there is limited opportunity for tax avoidance at lower income levels.

Clarity Needed Within IRS

The report also noted that there was no common understanding within the IRS regarding the term “high-income.” TIGTA urged the IRS to accept the Treasury Secretary’s directive of $400,000 as the new threshold for high-income individuals, providing a clear basis for enforcement efforts.

TIGTA Report Title

The TIGTA report is titled, “The IRS Needs to Leverage the Most Effective Training for Revenue Agents Examining High-Income Taxpayers.”