The newest health care and climate spending bill from Democrats contains an $80 billion boost that is intended to help the agency crack down on wealthy tax cheats. Republicans say that a bigger IRS could hurt lower-income Americans.
President Biden has been a top priority to provide the IRS with an influx of funding. Senate Majority Leader Chuck Schumer, D-N.Y. and Sen. Joe Manchin, D-W. Va. unveiled last week, has emerged as one of the most prominent financiers of the Inflation Reduction Act.
The Democrats projected that enhancing IRS funding could add an extra $124 billion in federal revenue over the next decade by hiring more tax enforcers who can limit tax evasion by rich individuals and corporations. The IRS Commissioner Chuck Rettig said that roughly $1 trillion in federal taxes goes unpaid yearly because of errors, fraud and a lack of resources to enforce collections.
The IRS disproportionately targets low-income Americans when it conducts tax audits each year. A tax data from fiscal year 2021 shows that households with less than $25,000 in earnings are five times more likely to be audited by the agency than everyone else, according to a recent analysis of tax data from the Transactional Records Access Clearinghouse TRAC at Syracuse University.
The IRS conducts checks of tax returns via letters or phone calls rather than face-to- face audits because of the rise in what is known as correspondence audits. In 2021, 100,000 of the 659,000 audits were conducted in person.
More than half of the correspondence audits initiated by the IRS last year included low-income workers with gross receipts of less than $25,000 who claimed the earned income tax credit, an anti-poverty measure, according to the Syracuse study.
Even taxpayers with a positive income that ranged from $200,000 to $1 million had one-third of the odds of being audited by the IRS compared to the lowest-income earners. In 2021, 9 million taxpayers reported high-income levels, but fewer than 40,000 of their returns were audited, or roughly 4.5 out of every 1,000. It is a contrast to lower-income Americans, who had an audit rate of 13 out of every 1,000.
The discrepancy is due to high-income taxpayers having complex investments that can easily shroud the gaps between taxes owed and paid vs. taxes reported and paid.
The right-wing Heritage Foundation said in a recent blog post that the IRS enforcement stepped up, despite the fact that there would be less scrutiny and greater audit risk, despite the fact that there wouldn't be a significant change in the composition of the IRS enforcement.
The Heritage Foundation said that most IRS individual audits target taxpayers with less than $50,000 of adjusted gross income. The group earns less income than others, but it faced tax adjustments from the IRS of $3.4 billion in fiscal year 2010. Americans with more than $50,000 reported more than $3.7 billion.
If the $80 billion funding is approved, the IRS will not increase audits on households earning less than $400,000.
In a letter to lawmakers on Thursday, Retting, the IRS commissioner, wrote that these resources are absolutely not about increasing audit scrutiny on small businesses or middle-income Americans. Our investment of these enforcement resources is designed around Treasury s directive that audit rates will not rise relative to recent years for households making under $400,000.