Study Finds IRS Audits of High Earners Yield
More Than $12 in Revenue for Every $1 Spent
A recent paper issued by economists at the U.S. Department of the Treasury, Harvard University and the University of Sydney, found advantages to the government with IRS audits that include the following:
- For every dollar that the IRS spends auditing taxpayers above the 90th percentile of earners, it yields more than $12 in revenue, and audits for below-median income taxpayers yield $5 in revenue for every dollar spent;
- The IRS estimates that there are more than $500 billion unpaid tax obligations each year—what the IRS refers as the “tax gap”—and those obligations are mostly among the top earners. When the IRS audits those earners, it is able to capture some of that unpaid tax revenue;
- Getting audited tends to induce taxpayers to increase the amount they pay in taxes, voluntarily, for roughly a decade and a half;
- For every $1 an audited person pays during their audit, they pay $3 more on their taxes in the subsequent years;
- Audits lead to an increase in future taxes paid that persists over 14 years. In present discounted value, these additional taxes are 3.2 times the revenue raised from their initial audit.
The paper’s findings are the reasoning for increased funding to the agency under the Inflation Reduction Act. Part of that allocation, which has been reduced by the recent agreement to suspend the debt ceiling, was intended for increased enforcement of uncollected taxes.
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