IRS May Get $80 Billion From Inflation Reduction Act

Knowing that the Internal Revenue Service could collect tens of billions of dollars from the Inflation Reduction Act (IRA) for tax enforcement could raise alarm bells for those who don’t trust the agency. However, tax experts say that as long as the agency follows the Ministry of Finance sponsorship intentionThe average compliant taxpayer has little need to worry about whether the measure will become law.

The IRA, recently passed by Senate Democrats, spends $80 billion over 10 years on the IRS, in addition to the agency’s regular deductions. That includes $25 billion for operations, $5 billion for technology modernization, and $45 billion for tax enforcement.

All 50 Republican senators voted against the bill. They argued that granting the IRS this grant would make it more likely that ordinary Americans would be audited. But that’s not the purpose of appropriations, according to IRS Commissioner Charles Rettig, who told the Senate that “audit rates are not going to increase from recent years for households earning less than 400,000 dollars.”

“These resources are not at all about increasing audit oversight of small businesses or middle-income Americans,” said Rettig, who was appointed by President Donald Trump, write in a letter to the Senate.

Instead, resources will go toward collecting taxes owed by “large corporations and high net worth taxpayers.” the purpose is narrow the so-called “tax gap”– the difference between the amount owed and the amount the IRS actually collects. The Treasury Department estimates that the gap totals $600 billion in 2019 and will grow to $7 trillion over the next decade.

The average American taxpayer doesn’t contribute as much, if any, to the tax gap. Janet Holtzblatt, a senior fellow at the Urban-Brookings Tax Policy Center who has spent decades working on federal tax policy, says the real culprits are corporations and the wealthiest Americans. can hire lawyers and accountants. government.

“The aim is not to hit people with lower and middle incomes,” says Holtzblatt. “The IRS does not have enough resources to match the resources of large businesses. Chances are they are being shot. The hope is that the money will strengthen those audits. “

In fact, Holtzblatt and three other former IRS commissioners appointed by Democratic and Republican administrations say that Grants can actually reduce audits about “ordinary Americans,” because “the IRS will be better at selecting returns to examine.”

Rettig and other tax experts have called for increased funding at the IRS to make up for two decades of budget cuts. Since 2010, IRS budget has been cut about 20%, with the coercive budget cut by almost a quarter.

Fewer resources resulted in a 44% decrease in total audits from 2015 to 2019, by 2021 report from the Treasury Inspector General for Tax Administration — and 75% for Americans earning $1 million or more. Besides, agents have had a recruitment freeze lasting many yearsThis leads to a “brain drain” for experienced auditors who aren’t replaced, Holtzblatt said. Since 2010, the agency has lose about 40% of employees who handled the most complex returns, leading to a significant drop in the number of corporations and millionaires audited.

The agency simply doesn’t have the resources to go after people with virtually unlimited resources to hide or obfuscate their tax burden.

“You need experienced auditors who can go head to head with the sophisticated, well-paid attorneys and other tax advisors that big businesses and wealthy individuals can afford to spend,” Holtzblatt said. pay.

That said, Holtzblatt said there was some ambiguity about what “recent years” meant in the agency’s promise that the audit rate would not increase for those earning less than $400,000 a year. . For example, the audit rate across all individuals was 0.9% in 2010 and 0.25% in 2019. That’s a big difference.

She also noted that despite some political views, the 87,000 new agents the Treasury says are needed are not all auditors. That number — potentially much higher than the actual number of agents that will be hired with IRA funding — will include new IT professionals, customer service representatives, and other employees.

Service and technology improvement

During the first two years of the COVID-19 pandemic, many taxpayers learned first-hand how decades of payroll and funding cuts could impact a government agency. Calls to IRS customer service often go unanswered and tax returns remain unprocessed for much longer than usual.

Holtzblatt says funding more customer service representatives will help with that. And $5 billion in technology upgrades will go toward fixing basic but critical infrastructure that has been neglected for years.

“IRS technology is outdated, noting that the agency is still using decades-old coding languages ​​like COBAL,” Holtzblatt said. “If they had the authority to be able to scan paper return returns, for example, that would really speed up returns.”

Another example of technology inefficiencies at work: the backlog of unprocessed tax returns may be due in part to a lack of working computers and printers at IRS offices. At the Tax Processing Center in Kansas City, Mo., only three out of 10 printers and copiers were operational at the end of March 2021, according to a Treasury Department report.

These devices are needed to create copies of tax returns in response to requests for tax documentation from taxpayers and other organisations. “The employees we spoke to were concerned that they would have to stop working if these remaining devices became inoperable.”

Organizing proposed changes in an IRA will enhance estimated $203 billion revenue from high earners and corporations that haven’t paid what they owe under applicable law. That revenue would in turn be used to reduce health insurance and prescription drug costs, as well as fund the clean energy projects the bill proposes.

Of course, nothing is certain. But Holtzblatt said that if the agency follows through with the stated intent of the deductions, the average compliant taxpayer need not worry about the agency going after them.

“In my experience – and this may be hard for people to believe – but the IRS is really sensitive to the spirit of taxpayers and also to the intentions of Congress,” she said. “Personally, I’m not worried about being audited.”