Stefani Reynolds/AFP via Getty Images
The IRS is about to get a big infusion of cash.
As part of the massive climate and health care bill passed by the House on Friday, the tax collection agency will receive $80 billion over the next decade.
Some of that money goes toward updating decades-old computer systems at the Internal Revenue Service (IRS). And some aim to improve customer service, including a taxpayer phone line where nine out of ten calls go unanswered.
However, the bulk of the money is for intensified enforcement — to help the IRS collect more of the estimated $600 billion in taxes that go unpaid each year, much of which is owed by wealthy people who underreport their incomes. .
“By increasing the IRS’s ability to tackle tax fraud, you’ll be able to collect at least $400 billion over the next decade, and I suspect significantly more,” said Natasha Sarin, a tax policy and implementation adviser. at the Treasury Department.
But there is bitter opposition from Republicans. The IRS funding passed Congress along strict party lines, just like the rest of the Inflation Reduction Act.
“Imagine IRS agents descending on America like a swarm of locusts,” Senator Ted Cruz, R-Texas, warned in an interview with Fox Business. And by the way, these IRS agents are not there to go after billionaires. They are there to go after you. They are there to go after your small business. They are there to go after your family .”
Both Treasury Secretary Janet Yellen and IRS Commissioner Charles Rettig — who was appointed by former President Trump — insist that the additional enforcement efforts will target the wealthy taxpayers, not the middle-class taxpayers.
“Let’s be very clear about what these sources do and don’t do,” Sarin said. “These resources do not lead to audits for small businesses or households earning less than $400,000 a year.”
The IRS had no financial resources
The new money will help reverse more than a decade of underfunding at the IRS. The agency’s enforcement ranks have shrunk by 30% since 2010.
Now that experienced auditors have left, the IRS has increasingly focused on simpler audits involving lower-income families, even though they account for a small portion of unpaid taxes.
Syracuse University researchers found that 46% of IRS checks in the most recent fiscal year targeted people who receive the Earned Income Tax Credit — a tax benefit designed to supplement the income of low-wage workers.
Kevin Dietsch/Getty Images
People who received the tax credit were more than three times more likely to be audited than taxpayers in general, though they accounted for a small portion of unpaid taxes.
“They’re easy numbers,” said Susan Long, who has been tracking IRS audits for decades as a co-founder of TRAC, a nonprofit research center in Syracuse. “The enforcement level has really gone down, except for this poor, lowest income group where you can just send a letter in the mail.”
Millionaires have largely avoided tax audits
At the same time, Long said, the IRS only audited 2.2% of millionaires’ tax returns last year — a sharp drop from 2015.
“Most millionaires don’t even look at their returns, although all the research shows that’s where the money is,” Long said.
The vast majority of ordinary wage earners pay all the taxes they owe. They don’t have much choice, as their income is reported directly to the IRS.
Rich people have more opportunities to avoid taxes. Their sources of income are often less transparent. And they can hire lawyers and accountants to get around the IRS, which is often too low.
“This has been a battle between David and Goliath for far too long,” Sarin said. “We’re finally giving the IRS the tools they need to do meaningful policing.” [tax] evasion at the top of the [income] distribution.”
Sarin argued that intensified enforcement will not only allow the IRS to raise more money for the government, but also ensure a fairer tax system.
“This is about putting an end to a bipartisan tax system, where certain taxpayers have the opportunity to evade, and other taxpayers fulfill their obligations and fulfill their obligations completely voluntarily — which is the vast majority of taxpayers,” she said.