The Internal Revenue Service (IRS) has announced that it will be renewing its efforts to crack down on shady tax preparers. This comes after a report by The Washington Post revealed that these preparers often go unpunished by the IRS and the Justice Department. In a letter to leaders of the Senate Finance Committee, IRS Commissioner Daniel Werfel stated that these bad actors disproportionately file tax returns for vulnerable taxpayers, including low-income filers, filers of color, and those with limited English proficiency.
In addition to targeting unscrupulous preparers, the IRS also announced that it will be conducting fewer audits of taxpayers who claim the Earned Income Credit and other tax benefits for lower-income Americans. This practice had come under scrutiny for its disproportionate effects on poor and Black taxpayers. Instead, the IRS will be focusing its auditors’ efforts on high earners and complex corporate partnerships.
Furthermore, the IRS will be referring more tax preparers suspected of fraud to its criminal investigation division, an action that is currently rare. The agency plans to support Volunteer Income Tax Assistance programs in low-income neighborhoods, providing taxpayers with access to ethical return preparation by volunteers.
This shift in focus marks a change in course for the IRS, which had previously been cutting back on auditing high-income individuals and large corporations while continuing to audit low-income individuals claiming the Earned Income Credit. The change in strategy will be funded by the Inflation Reduction Act’s infusion of cash into the IRS to hire more auditors who can conduct more complex audits.
Chair of the Senate Finance Committee, Ron Wyden, praised the planned shift in focus and stated that Congress had increased funding for the IRS for this purpose. He emphasized the need for the agency to fully eliminate racial bias from its audit selection methods.
While the IRS did not provide specific numbers, it stated that it would substantially reduce audits of low-income taxpayers claiming credits such as the Earned Income Credit, the American Opportunity Tax Credit, the Health Insurance Premium Tax Credit, and the Additional Child Tax Credit. These credits are important sources of government aid to low-income families, but there have been allegations of fraudulent claims and efforts to crack down on fraud that some argue unfairly target Black taxpayers.
Moving forward, the auditors’ time will be focused on complex partnerships, particularly those with significant discrepancies between reported assets and recorded balance sheets, which may indicate attempts to hide money from tax collectors. The IRS also plans to work harder to collect tax debts, with a focus on those who owe at least $250,000.