The IRS released its plan on Thursday for how it will use $80 billion in new funding provided by the Inflation Reduction Act, emphasizing that it won’t be used to drive up audits on the middle class.
The 150-page Internal Revenue Service plan was released with the blessing of new Commissioner Danny Werfel. The report seeks to respond to Republican accusations that the agency will become supercharged and use its power to target the public. It also highlighted the agency’s plans to streamline customer service and help people properly file their taxes and avoid the auditing process.
BIDEN IRS NOMINEE VOWS NO INCREASED AUDITS FOR THOSE EARNING UNDER $400K
The Treasury Department said that the new enforcement resources will be used for hiring accountants, attorneys, and data scientists, rather than auditors and investigators. The administration is emphasizing in the report that the new resources will not be used to claw back funds from the middle class and will rather be focused on those earning in excess of $400,000.
“All efforts will comply with your directive not to use [Inflation Reduction Act] resources to raise audit rates on small businesses and households making under $400,000 per year, relative to historic levels,” the report reads. “Our efforts outlined in the Plan to provide better service to taxpayers, help them file accurately and resolve issues at filing, coupled with technology and data advances, will allow us to focus enforcement on taxpayers trying to avoid taxes, rather than taxpayers trying to pay what they owe.”
The IRS said that taxpayers earning $1 million or more annually were subject to an audit rate of just 0.7% in 2019, a precipitous drop from 7.2% in 2011.
“We will increase enforcement for high-income and high-wealth individuals to help ensure they are paying the taxes they owe. Given the size and complex nature of these tax filings, this work often requires specialized approaches, and we will make these resources available," the report says.
In a memorandum to Treasury Secretary Janet Yellen, Werfel noted five key objectives of the plan:
In addition to wealthy individuals, the IRS noted in its report that overall audit rates for corporations have plunged massively over the past decade or so. In 2011, the corporate audit rate was above 10%, but as of 2019, it had fallen to just 1.7%. The report also contends that large corporations often produce “complicated, voluminous tax filings” and that agents will better work to sort through those with the new funding.
The agency also said that audits should be a last resort.
During a call with reporters ahead of the report’s release, Werfel said that the IRS would be updating transcripts, notices, and forms to be more user-friendly and available in more languages. He also highlighted the declining IRS workforce as part of the need for the funding.
“Since 2010, enforcement personnel has declined 30%, while the economy grew by more than 30% and filing grew by 14%. This means our work on resource-intense areas, particularly wealthy individuals, large corporations, and big partnerships suffered,” Werfel said.
Republicans have also raised the idea that the IRS funding would be used to hire more armed agents that are part of the agency’s Criminal Investigation division. Some on the Right have invoked the image of a widescale crackdown with an army of weaponized IRS agents, but Werfel pushed back on those characterizations ahead of the report’s release.
Werfel was asked about the number of new criminal investigation agents that could be added with the funding and said that the number of armed agents would remain proportionally the same despite the influx in hiring.
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“CI staffing makes up 3% of the IRS workforce, and there are no plans to increase that percentage as we move forward with the Inflation Reduction Act,” he said.
While Republicans see the influx in staffing as an unneeded overreach, Democrats have countered the GOP by noting that the tens of thousands of new employees will not all be auditors and will include thousands of workers in other roles. A large number of current IRS workers are also expected to retire in the coming years, partially offsetting the number of those being hired.