The IRS has recovered $1.3 billion from rich American tax dodgers since the fall of 2023 — relieving a painful burden from ‘ordinary citizens’

The gains, the tax agency reports stem from the failure of rich Americans to catch up on their returns dating back to 2017. But efforts kicked into high gear in February, when the IRS found itself in a much better position to pursue those who fall into the tax brackets of between $400,000 and $1 million, or more than $1 million in annual income.

It involved some detective work, too, as the IRS received third-party information — much of it through W-2s and 1099s — that indicated a gulf between what rich people made and what they paid. Result: a billion-plus dollars recovered from the nearly 80% of the 1,600 millionaires with delinquent tax debt. That includes $100 million since July, the IRS stated.

Treasury Secretary Janet Yellen announced the milestone to press at an event in Austin, Texas. Yellen praised the “tireless” work of IRS agents, despite being hampered by reduced funding, but still the agency fell short on its audit goals — especially for high-earners. Here’s why she’s crediting the Inflation Reduction Act for helping shift the burden from “ordinary citizens.”

Where Inflation Reduction meets fair taxation

Signed into law by President Joe Biden in 2022, the IRA (not to be confused with the tax-free retirement account freed up funding for tax officials to track individuals with more than $1 million in income and $250,000-plus in recognized tax debt.

How did these well-to-do tax dodgers get away with it in the first place? In its press release in early September, the IRS acknowledged the limitations of its 65-year-old technology — and the ongoing efforts to modernize it. It’s known as the Individual Master File mainframe but referred to by some cheeky CPAs as “the Studebaker System,” after the defunct ’60s car manufacturer.

CPA Trendlines Research founder-CEO Rick Telberg described its inner workings in 2021: “The National Taxpayer Advocate Report to Congress likens the IMF to a 1960s car that has been souped up with Bluetooth, GPS, and anti-lock brakes, but it’s still an old car that isn’t going very fast and shouldn’t be on the road.”

The good news is that IRS funding of newer technology will benefit all honest taxpayers moving forward; it can now convert its ancient systems to the modern Java language. As a result, the agency expects it’ll be able to provide better customer service.

The implications for everyday taxpayers

But perhaps just as important for the taxpaying public is the message — a genuine threat, in fact — that if wealthy people skirt or scoff at their delinquencies, the agency will come after them with renewed vigor.

The implications are also clear on two other fronts. First, the rich will lose leverage to manipulate the agency (through high-powered lawyers or CPAs, for example) if they indulge in illegal behavior. And second, ordinary taxpayers who play by the rules have nothing to fear — and perhaps something to gain — as the agency turns added attention to the rogues.

Yet the question remains: How long can the IRS keep it up? Republicans in Congress, who’ve long treated the IRS as Public Enemy No. 1 to their political advantage, rescinded $20.2 billion in IRA funding for the IRS in March, reallocating it to other agencies. Still, the annual budget for the IRS remains flat at $12.3 billion for fiscal 2024, which may allow its in-progress efforts to continue.

As for how the average taxpayer would stand to benefit, when announcing the Inflation Reduction Act, the Biden administration projected that if the government sustained the funding planned for the tax agency for a decade, it could increase revenue by as much as $851 billion. To put that into perspective, that’s about on par with what the government provides in funding for the Department of Defense.