The IRS Is Increasingly Targeting the Well-To-Do


With Uncle Sam in a financial bind, he appears to be going after wealthier tax cheats to scrape together money to pay the bills. The Internal Revenue Service is increasingly auditing the rich, reveals one of the statistics in the 2009 Data Book recently released by the agency. In particular, reviews of filings by people with incomes between $1 million and $5 million were up by about a third in the period between Oct. 1, 2008, and Sept. 30, 2009.

The agency writes that it collected a total of more than $1.9 trillion in taxes, net of refunds, during this period and processed more than 236 million returns.

"The 2009 results show our emphasis on higher-income individuals," IRS spokesman Bruce I. Friedland told The New York Times. "We will continue to focus our enforcement efforts on high-income taxpayers, particularly those hiding their assets overseas."

The increased scrutiny of the affluent is only natural because a wealthy individual is likely to yield more penalties for a tax violation than a poor one. But the IRS is almost certainly thinking beyond those dollars and cents.

Piercing Swiss Banking Secrecy

An example of how the IRS is extending its reach is its aggressive approach to offshore tax havens. In June 2008, Swiss bank UBS (UBS) nearly lost its ability to do business in the U.S. when authorities found out that it had participated in hiding client assets in its private bank in Switzerland. American officials pressed UBS for data on 20,000 customers.

In February 2009, after a U.S. Justice Department investigation, UBS paid the U.S. $780 million in fines for helping some of its customers avoid taxes. The event caused friction between the Swiss and American governments as the European nation fought to keep data held by its banks secret.

The bottom line is clear: The IRS needs money. Receipts from individuals are down because of the recession. That helps fuel the growing federal deficit.

The wealthy are more adroit than the middle classes at hiding assets. That means the effort it takes to uncover fraud among the well-to-do is difficult. But the agency must be convinced that for every $1 it spends on investigating people with incomes between $1 million and $5 million, it get much more than the $1 in return.