Treasury Secretary Janet Yellen announced this week that the IRS will release its long-awaited spending plan for $80 billion in new funding.
Yellen stated on Tuesday that the tax-collecting agency’s spending initiatives will be outlined in greater detail when its strategic operating plan is released later this week.
IRS wanted wealthy Americans and big corporations to pay taxes
In August 2022, President Biden signed into law the Inflation Reduction Act, a Democratic spending bill on health care and climate change that included funding for the Internal Revenue Service over the next decade.
The funding is intended to increase tax compliance among large corporations and wealthy Americans, thereby reducing the estimated $600 billion tax gap.
Yellen stated, “The technology will be complemented by the hiring of additional top talent, including accountants and attorneys.” These additional resources will assist us in dismantling complex corporate structures and ensuring that large taxpaying entities pay what they owe.
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Low-income Americans are unfairly targeted by tax audits
According to an analysis of tax data from the fiscal year 2021 by the Transactional Records Access Clearinghouse (TRAC) at Syracuse University, households earning less than $25,000 per year are five times more likely to be audited by the agency than other taxpayers.
This is due to an increase in so-called correspondence audits, in which the IRS conducts reviews of tax returns via letters or phone calls as opposed to more complex face-to-face audits. In 2021, only a small fraction of the 659,000 audits will be conducted in person.
54% of IRS correspondence audits initiated last year involved low-income workers with gross incomes of less than $25,000 who claimed the earned income tax credit, an anti-poverty measure, according to the Syracuse study.
The discrepancy is primarily attributable to the complex investments of high-income taxpayers, which can easily conceal the differences between taxes owed and paid and taxes reported and paid.
Tuesday, Yellen confirmed that the IRS will not increase audits of households earning less than $400,000 per year.
Yellen stated, “As I have previously stated, I have ordered that these resources not be used to increase the audit rate for small businesses and households earning less than $400,000 annually relative to historical levels.”
Efforts to reduce the nation’s $30 trillion debt will be funded by the revenue generated by a more efficient Internal Revenue Service.
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