The Internal Revenue Service (IRS) cannot keep Secretary of the Treasury Janet Yellen’s promise to raise the high-income threshold, according to a Treasury Inspector General For Tax Administration (TIGTA) report.
Yellen pledged in August 2022 that the IRS would focus its efforts away from auditing households that made below $400,000 a year, according to a Department of Treasury press release. An August 2023 TIGTA report showed that the IRS does not know exactly who makes above $400,000 because of how it categorizes levels of “high-income earners,” and that the agency has failed to clearly define what the high-income threshold should be. (RELATED: A Biden Tax Hike Kicked In That Affects Everything From Soap To Lightbulbs)
“[T]here is no way to identify the complete population of taxpayers that meet the criterion of $400,000 or more specified by the current Treasury Secretary,” the report reads. “An accurate activity code scheme is important because it would enable the IRS to track issues found during examinations of high earners.”
“[E]xamination code scheme refinement is needed to better identify and track examination results of households earning more than $400,000,” the report continues.
Today is an historic day for our country and our economy. The Inflation Reduction Act of 2022 will make America more competitive, lower health and energy costs for families, reduce the budget deficit, and increase long-term economic growth. pic.twitter.com/zsoiJhIk9T
— Secretary Janet Yellen (@SecYellen) August 12, 2022
The IRS combines all earners who make between $200,000 and $999,999 in the same category, meaning the agency only knows that a person qualifies as “high-income,” but not how much that person specifically makes, according to the report. The TIGTA recommended that the IRS create a clearer definition of the high-income categories so that it could fulfill the Treasury Secretary’s promise.
“Currently, the high-income terminology is being used loosely inside the IRS with no common understanding of what the term means,” the report said. “At a minimum, the IRS should accept the Treasury Secretary’s $400,000 directive as the new high-income floor on which IRS leadership can focus enforcement efforts.”
The IRS disagreed with the recommendation because it said “static” definitions would restrict its “agility to address emerging issues and trends,” according to the report.
The IRS is currently working to figure out who makes $400,000 or more, but admitted that it will not have an accurate picture until at least August 2024, according to the report.
“The IRS is not increasing the audit rate on those earning less than $400,000,” the agency told the Daily Caller News Foundation in a statement. “The IRS is focused on pursuing high-income earners, partnerships, large corporations and promoters abusing the nation’s tax laws. The recommendation in the TIGTA report has no bearing on the IRS’s implementation of Secretary Yellen’s directive.”
The TIGTA and the Department of the Treasury did not immediately respond to the DCNF’s request for comments.
Editor’s Note: This article has been updated to include a statement from the IRS.
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