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IRS Commissioner Danny Werfel

Regulation and Compliance > Federal Regulation > IRS

IRS Collected $500M From Wealthy Tax Cheats

By Melanie Waddell

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The Internal Revenue Service continues to take “swift and aggressive action” to rein in high-income tax cheats, recovering in the past year $520 million in back taxes from individuals with more than $1 million in income and more than $250,000 in recognized tax debt, IRS Commissioner Danny Werfel told lawmakers.

“That’s half a billion dollars recovered from fewer than 1,000 millionaires and billionaires,” Werfel said in recent testimony.

On Sept. 8, the IRS said that it was shifting its attention to wealthy taxpayers, partnerships and other high earners “that have seen sharp drops in audit rates” during the past decade.

“It will be driven with the help of improved technology as well as Artificial Intelligence that will help IRS compliance teams better detect tax cheating, identify emerging compliance threats and improve case selection tools to avoid burdening taxpayers with needless ‘no-change’ audits,” the agency explained.

The new compliance initiative was funded by the $80 billion, 10-year funding boost the IRS received in 2021 under the Inflation Reduction Act. A spending deal in 2023 clawed back $20 billion of that funding.

Werfel told lawmakers on Feb. 15 that achieving the agency’s “ambitious transformation agenda requires us to rebuild areas in the IRS that have suffered from more than a decade of underfunding that preceded the IRA.”

2024 Filing Season

Providing an overview of the 2024 tax filing season, which began on Jan. 29, Werfel said that it’s “going smoothly so far,” and that through Feb. 2, the IRS received more than 15.3 million individual income tax returns and issued more than 2.6 million refunds for approximately $3.65 billion.

The agency also has a goal this year of providing more in-person help at its Taxpayer Assistance Centers, he added.

“The goal is to provide over 8,500 more hours of in-person assistance than we did last filing season,” Werfel told members of the House Ways and Means Committee on Feb. 15.

“We are expanding hours at nearly 250 TACs around the country during the filing season; again offering special Saturday hours at certain TAC locations; and opening more pop-up centers to reach taxpayers who do not live near a TAC,” he said.

Direct File

The IRS, Werfel continued, is also conducting a limited-scope pilot of Direct File.

In 2024, eligible taxpayers in 12 participating states will have the option to file their return this way.

“The pilot will allow us to assess customer and technology needs, so we can evaluate and develop solutions and make a recommendation about the future of a Direct File system,” Werfel said. “Our work on Direct File is an important innovation in our ongoing efforts to transform the IRS and lead the agency into a digital, taxpayer-focused future.”

Form 1099-K Reporting Requirements

The 1099-K annual reporting threshold was lowered by Congress in 2021 to $600 per year, changed from the previous threshold of more than 200 transactions per year exceeding an aggregate amount of $20,000.

The IRS delayed the effective date for the new threshold in November 2023, for a second time, in response to continuing concerns from taxpayers, tax professionals and payment processors, Werfel said.

“The additional time is necessary to help reduce confusion among taxpayers and provide more time for taxpayers to prepare for and understand the new reporting requirements,” Werfel testified.

For tax year 2024, the IRS plans for a threshold of $5,000 as part of a phased-in implementation of the $600 reporting requirement, Werfel said.

Form 1099-K is used to report income from transactions over third-party payment platforms like Venmo, PayPal, eBay and Etsy. While such income is taxable whether a form is issued or not, the change means that many more small sellers and service providers will receive the forms.

“As we go forward, we will work closely with third-party groups, tax professionals and others to find the smoothest path to ensure compliance with the law,” Werfel said.

Melanie Waddell

@Think_MelanieW

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