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Wealthier taxpayers are new IRS in-person audit targets

Man knocking on door

Having plenty of money apparently also has some drawbacks. Really.

One is that you could soon get more attention from the Internal Revenue Service, especially if you've been, shall we say, a bit lax in letting Uncle Sam know about your how well you're doing.

The IRS announced today that it will be sending agents to visit taxpayers who haven't filed returns or didn't do so in a timely manner in 2018 or previous years.

These particular in-person tax inquiries, according to the IRS, will be on those whose income is $100,000 or more.

Audit income disparities: These in-person audits of higher- earners come on the heels of an initiative announced last November. Back then, the IRS was face-to-face compliance audits in specific regions that had sustained personnel reductions.

The revisiting of audit tactics also follows recent Congressional inquiries. The federal tax agency came under fire from Capitol Hill last year for audit techniques that appeared to place an inequitable focus on lower-earning taxpayers.

At issue was/is the IRS' specific attention on filers who claim the Earned Income Tax Credit (EITC). The EITC is a refundable tax credit, meaning eligible claimants can get tax money back if there's more credit than any tax they owe, for low- and middle-income individuals who work.  

The IRS says around half of EITC claims contain errors. In addition, concerns about abuse of the credit and its potential for tax fraud led to a law requiring the IRS to hold refunds of those who claim the EITC (and the Additional Child Tax Credit) until mid-February so that the agency can give these returns a closer look.

During a hearing before the Senate Finance Committee (SFC) in April 2019, IRS Commissioner Chuck Rettig acknowledged the audit income disparity, but said it was due in large part to a lack of resources.

IRS staff are more equipped to handle audits, particularly via correspondence, of returns filed by lower-earning taxpayers who typically claim the EITC than the more complex 1040s submitted by wealthier filers.

EITC Assistant _Father son

"Audits of more rural, lower income taxpayers occur because these taxpayers are more likely to claim the EITC," according to an IRS report delivered to Congress following Rettig's SFC testimony. That report again noted that the IRS' decision to focus on EITC claims because that's "the most efficient use of available IRS examination resources."

Evening up examination efforts: Time and those previously scant IRS resources, however, have changed things, including the agency's audit attitude.

In announcing its new focus on wealthier taxpayers who aren't meeting their tax obligations, the IRS didn't refer to the earlier Congressional questions. However, the agency did say that its stepped-up efforts to visit noncompliant higher income taxpayers is "part of a larger effort to ensure compliance and fairness."

"The IRS is committed to fairness in the tax system, and we want to remind people across all income categories that they need to file their taxes," said Paul Mamo, Director of Collection Operations, Small Business/Self Employed Division in a statement announcing the effort. "These visits focusing on high-income taxpayers will be taking place across the country. We want to ensure taxpayers know their options to get right with their taxes and avoid bigger issues later."

This realignment is now possible, the IRS said, echoing Rettig's Senate testimony, thanks to new resources.

"Following the recent and ongoing hiring of additional enforcement personnel, IRS revenue officers across the country will increase face-to-face visits with high-income taxpayers who haven't filed tax returns in 2018 or previous years," according to today's statement.

IRS emphasizes the visits aren't a scam: This IRS notes that it has laid the foundation for this new, in-person compliance initiative.

The high-income taxpayers who could soon be greeting IRS agents on their doorsteps already know they have an issue, says the IRS. The noncompliant filers typically have received numerous letters from the IRS over an extended period of time.

Still, the IRS wants to make sure that the taxpayers don't mistake the legitimate tax agency visits for a scam.

Here's what the IRS says you should look for if one of its agents knocks on your door:

  • While most IRS revenue officer visits to a taxpayer are unannounced, they will always provide two forms of official credentials. Both IDs will include a serial number and photo of the IRS employee. Taxpayers have the right to see each of these credentials.
  • A legitimate IRS revenue officer will explain the liability to the taxpayer, along with the consequences of failing to comply with the law. The IRS employee will not make threats nor demand an unusual form of payment for a nonexistent liability.
  • If someone has an outstanding federal tax debt, the visiting officer will request payment, but will provide a range of options, including paying by check written to the U.S. Treasury.

Again, you should have been notified previously by the IRS via mail about an issue with your taxes before the agent arrived on your doorstep.

And this new round of in-person visits also is a good reminder to all taxpayers, regardless of your income or filing issues, to never ignore IRS notices. It's almost always much easier to resolve matters via these correspondence audits than taking time to talk in person — and at your home — with an IRS agent.

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