The IRS will soon announce how it intends to spend the substantial sums provided to the agency in the Inflation Reduction Act, which includes an additional $80 billion for tax collectors.
Treasury Secretary Janet Yellen announced the agency’s plans this week while swearing in IRS Commissioner Daniel Werfel on Tuesday. The organization has already announced a rough breakdown of how the cash will be used.
IRS Divides Funds Into Four
The $80 billion will be spent over the next ten years, representing the largest financial increase for the federal tax collection agency in decades. The money is divided into four categories by the IRA: $25.3 billion for operations, $3.1 billion for answering phones, $4.8 billion for new technology, and a whopping $45.6 billion for enforcement and audits.
Beyond those broad allocations, it is up to the IRS and the Treasury Department to detail how the money will be used. According to two Washington, D.C.-based tax specialists briefed on the plans, the more specific designations will be made public Thursday afternoon.
During the swearing-in of new IRS Commissioner Danny Werfel on Tuesday, Treasury Secretary Janet Yellen said the plan would be announced this week and repeated a vow that audit rates would not be raised for anyone earning less than $400,000 per year, despite all the increased money for audits.
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Tax Gap
There has been some significant criticism of how the new money for the IRS was divided in the IRA. Critics of the financial increase argue that too much of it would go to audits rather than fundamental taxpayer services and new technology, which has been out of date for years.
Lawmakers and bureaucrats have justified the extra enforcement funding by citing the “tax gap,” or the amount of money owed to the government but not collected each year.
According to the IRS, this amounted to nearly $470 billion every year between 2017 and 2019, or about 2.4 percent of total US output. The tax gap is calculated retroactively, and the most recent concrete figures are from 2014 to 2016 when it averaged $428 billion per year.