The IRS has stepped up tax enforcement, and it has already collected more than $1.3 billion in unpaid taxes since fall, 2023.

The IRS has begun catching up on a long backlog of what it calls “enforcement actions.” This is the agency’s process of review to determine if a taxpayer owes money and, if so, how much. The backlog was created by significant budget cuts over the past 14 years that forced the agency to lay off much of its audit and oversight staff. With fewer resources, the IRS reduced its annual audits by more than 50% during the 2010s. In particular, it largely stopped auditing high net-worth households.

With an increase in funding, the IRS has begun reviewing these files. The statute of limitations on unpaid taxes is 10 years, so the agency can review back as far as 2014 at time of writing. Currently, it has launched two enforcement actions: One, begun 12 months ago, is auditing the records of taxpayers with at least $1 million of income and potential tax debts of at least $250,000. The second, launched in February, is reviewing households with more than $400,000 of income and one or more years in which they did not file a tax return.

This crackdown has collected a combined $1.3 billion to date.

This is an ongoing enforcement action. According to agency announcements, the IRS believes that a significant number of wealthy households are in significant tax arrears, and have been for many years. It intends to begin collecting these outstanding debts going forward.

Here’s what you need to know. You can also consider speaking with a financial advisor about building strategy for your taxes.

This Is a Catch-Up Enforcement Action

In taxes and tax law, few issues have been more important to the past 15 years than funding for the IRS.

In 2010, Congress began a series of cuts to the IRS’ budget. Between 2010 and 2021 the tax agency lost more than one-fifth of its funds, with Congress cutting its budget from around $15.1 billion per year to a low of around $11.4 billion (all numbers adjusted for inflation). Over that same period, as the population and economy grew, tax filings increased between 7% and 10%, meaning that each year Congress expected the IRS to do more with less.

These cuts were primarily driven by an ongoing fight between Republicans and Democrats over the Affordable Care Act (otherwise known as Obamacare). The ACA uses taxes as its primary mechanism for enforcement and funding. This puts the IRS in charge of enforcing many of the ACA’s requirements, and in 2010 it made the IRS the face of the recently-passed healthcare law. Unable to pass regulatory legislation to repeal the ACA due to a Senate filibuster, opponents of the law attempted to use budgetary legislation to pull funding for its enforcement.

This, however, was not possible due to what is known as discretionary vs. nondiscretionary functions.

Enforcing the Affordable Care Act is a “nondiscretionary function” for the IRS. These are duties that a government agency must perform by law, either in full or to a legislative standard. (For the IRS, the largest nondiscretionary function is collecting and processing tax returns.) The agency cannot choose to reduce or neglect a nondiscretionary function.

When an agency’s budget is cut it must first reduce its discretionary functions. These are operations over which the agency has authority. It can decide how, how much or even if it will conduct a discretionary function, meaning that the agency can reduce or eliminate these functions if it doesn’t have the budget for them.

The IRS’ biggest two discretionary functions are taxpayer services, such as answering questions and helping people file their taxes, and enforcement. As a nondiscretionary function, the IRS could not reduce ACA enforcement in response to budget cuts. So, instead, it repeatedly slashed taxpayer services and enforcement.

On the taxpayer services side, the IRS lost about 27% of its workforce. Wait times to speak with an agent soared, about 90% of calls were disconnected, and, even if you did talk to someone, the IRS stopped answering substantive questions. On enforcement, the IRS lost about 30% of its workforce. The audit rate dropped by about half, and the agency largely stopped pursuing wealthy accounts because it didn’t have the manpower to deal with a rich taxpayer’s sophisticated accountants and lawyers.

This has left the IRS with a deep enforcement backlog, particularly with high-income taxpayers. Agency estimates suggest that this has led to about $430 billion per year in underpayment, known as the “tax gap,” or roughly 16% of all income taxes owed across the country.

The New Enforcement Actions

Now, all this has begun to change.

In 2022, Congress passed the Inflation Reduction Act. This is a sprawling piece of legislation with many different parts, including a significant increase in funding for the IRS. Under this law the tax agency will receive several billion per year in additional funding for the next 10 years. Most of this money is earmarked specifically for enforcement and closing the tax gap. To date, the IRS has used these new funds to hire (among others) several thousand new accountants and enforcement agents. (While beyond the scope of this article, the IRS has also significantly increased taxpayer services.)

These new resources led to the IRS’ recently announced enforcement actions.

With a mandate to expand enforcement and the funding to do so, the IRS has stepped up its audits on high net-worth households. Specifically, at time of writing the agency has announced enforcement actions against two main categories of taxpayers:

Taxpayers with more than $1 million in income and potentially at least $250,000 in tax debt
Taxpayers with more than $400,000 in income who have not filed a tax return in one or more years since 2017

Up until 2016, the IRS ran what was called the “non-filer program.” This was a review program designed to identify taxpayers who had earned significant income but who had not filed their taxes. Starting in 2017, this program was significantly curtailed due to budget cuts. The agency resumed its non-filer program in February, 2024, and announced that it has to date collected more than $172 million from taxpayers who did not file a return between 2017 and 2023.

Beyond that, the IRS is focused on enforcement actions against high net-worth households. This is because, among other issues, these are the taxpayers whose accounts have been most neglected in recent years. It is difficult and expensive to audit wealthy households, both because their taxes are complex and because they can hire financial and legal professionals to represent their interests. In an era of budget cuts, the IRS increasingly avoided these files because it didn’t have the staff to audit them.

And according to the U.S. Government Accountability Office (GAO) estimates, wealthy households are by far the most likely to avoid paying known or knowable taxes. In particular, this office suggests that households with $10 million per year of income have been audited at roughly one-eighth the rate of lower-income households while owing an average of $359,000 per year.

With a larger budget and an increased staff, the IRS can pursue these files. This enforcement action has been ongoing since fall, 2023. In that time the agency has collected more than $1.1 billion in unpaid taxes.

If you have questions about your taxes or tax strategy, consider speaking with a fiduciary financial advisor.

Will This Effect You?

For most individual taxpayers, it is very unlikely that this program can take you by surprise.

The IRS has focused its efforts on high-delinquency households. This means taxpayers who have either failed to pay their taxes in whole or significant part, or who neglected to file a tax return entirely. For any taxpayer who has filed an annual return with accurately reported income, it is extremely unlikely that this enforcement action will affect them.

That said, it’s never a bad idea to make sure that your finances are in order. If you have any reason to believe that you have underpaid your taxes, the best thing you can do is speak with a professional like an accountant or financial advisor. Consult with them about reviewing the tax year in question to make sure that you fully paid your bill.

If you did not file your taxes for a year, it is critical to address that issue immediately. Strongly consider seeing a professional about preparing a tax return for the year in question. You will need to pay those taxes, so it’s important to understand exactly what that debt looks like as soon as possible.

In all cases, the most important thing you can do is to be proactive. This writer can speak from professional experience that the IRS has wide latitude when it negotiates an underpayment or a missed return. Agents have significant authority to discuss payment plans, installment agreements and even (in unusual circumstances) reduced tax debt. They can even reduce or waive fees, interest and fines based on individual circumstances.

However, IRS agents are almost always more willing to work with a taxpayer who approached them. If you contact the IRS about resolving a tax issue in good faith, the agency is far more likely to be flexible than if it had to pursue you through an enforcement action. As a result, if you have any reason to believe that you have underpaid your taxes or missed a filing, see a professional. Get a clear answer so that you can take the next steps yourself.

The Bottom Line

Flush with new funding, the IRS has begun to catch up on its enforcement backlog. In the past year it has collected more than $1 billion in unpaid taxes. The current enforcement actions focus on high-income households that either owe a significant debt or that have not filed taxes at all.

Tips on Managing Your Taxes

If you owe money on your taxes, the most important thing to remember is don’t panic. The IRS offers a range of options to help taxpayers with their bills. So pour yourself a cup of coffee, take a deep breath and follow these tips.
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