Wharton Business Daily How Audit Rates and Policy Shifts Impact IRS Effectiveness
May 28, 2025
Explore how audit rates affect the IRS's revenue generation, especially focusing on high-income taxpayers. Discover the influence of recent policy changes and the Inflation Reduction Act on audit effectiveness. The conversation highlights the significant disparity in unpaid taxes between wealth brackets and proposes strategic spending for maximum impact. Tune in for insights on reshaping tax policy to promote compliance and increase efficiency!
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Audit Rates Peak and Decline
- IRS audit rates peaked around 2010, then declined until 2020 before recent funding increased them again.
- Audit rates are crucial because unpaid taxes are heavily concentrated among the top 10% of taxpayers.
High-Income Audits Yield More
- IRS audits yield higher returns when targeting high-income taxpayers compared to low-income groups.
- The IRS may return about $12 per dollar spent auditing the top 10% of earners, over twice the return for lower income audits.
Focus Audits on High Earners
- Policymakers should consider prioritizing audit resources on higher income taxpayers for maximum revenue impact.
- The IRS commissioner has indicated audit funds should focus on taxpayers with earnings above $400,000.