IRS Launches Aggressive Crackdown on Tax Evasion by Millionaires and Billionaires, Uncovering Over $150 Billion in Annual Losses

Werfel outlined several reasons behind the underestimation of retirement savings needs by affluent individuals:

Real Estate Overvaluation:

• • The increase in home values has led to a false sense of financial security among high-income families who own valuable properties, causing an underestimation of housing debt relative to assets.

Wealth Illusion in Defined Contribution Plans:

• • The concept of “wealth illusion” misleads individuals about the adequacy of their defined contribution (DC) plan balances, often underestimating retirement income.

Overly Optimistic Market Returns:

• • Strong market returns fuel misconceptions about one’s ability to prepare financially for retirement, especially in low- and middle-income households, which causes an underestimate of one’s future financial needs.

Dual-Earner Household Dynamics:

• • Dual-earner households commonly overlook the need to replace both partners’ incomes in retirement, particularly in cases where only one spouse contributes to a retirement plan.

Social Security Benefits Misinterpretation:

• • Wealthier individuals may misinterpret Social Security benefits, contributing to a false sense of financial security.

Werfel emphasised that a lack of funding for the IRS over the years deprived the agency of the staff, technology, and resources required for audits, especially for complex returns. As a result, audits of taxpayers making over $1 million a year fell by more than 80% over the last decade.

To address this, the IRS has launched programmes targeting taxpayers with the most complex returns to root out tax evasion and ensure every taxpayer contributes their fair share. Despite criticism from some Republicans in Congress, the IRS aims to enforce greater tax compliance among the wealthy.

The IRS is already showcasing success in a programme targeting unpaid taxes from millionaires, having collected over $480 million from identified taxpayers who failed to pay at least $250,000 each in assessed taxes. Additionally, the agency is launching audits on owners of private jets and scrutinising limited partnerships to combat potential evasion.

Werfel highlighted the importance of AI in identifying high-risk returns, making audits more precise, and benefiting taxpayers by following the rules and the overall fairness of the system. The Treasury Department estimates that enhanced IRS enforcement could result in an additional $561 billion in tax revenue between 2024 and 2034.