The IRS claims its 87,000 new workers may help collect up to $1 trillion by compelling tax evaders to pay. Prepare yourself, ultra-wealthy Americans: President Joe Biden wants you to begin contributing.
Biden proposes to raise money for the Internal Revenue Service (IRS) through the Inflation Reduction Act to assist the agency in catching tax evaders, especially high-income earners who love to discover legal loopholes.
According to a May 2021 Treasury Department analysis, the additional funds would enable the agency to hire around 87,000 new workers by 2031, including revenue agents, customer service, and IT personnel.
Advocates estimate the additional financing may generate as much as $1 trillion by compelling tax evaders to pay their fair share, especially after years of budget cuts have weakened the system.
Nonetheless, some opponents are concerned that the greater monitoring of taxpayers might backfire spectacularly.
The IRS is in serious need of assistance.
The $80 billion in funds distributed over the next decade will assist the IRS in modernizing its infrastructure, increasing enforcement, and replacing its aging personnel (50,000 of the IRS’s 80,000 employees are set to retire in the next five years).
According to reports, the agency has been underfunded by around 20% over the past decade, causing it to cut back on staff. The IRS also faces technological changes due to its aging info structure. Due to a backlog of millions of unprocessed paper filings and a processing system over half a century old, the IRS needs more resources and assistance.
The customer care department has also been severely understaffed. During the filing season of 2022, the IRS received over 73 million calls from taxpayers, of which only 10% were answered.
In her midyear report to Congress, national taxpayer advocate Erin M. Collins stated there were over 21 million paper tax returns unprocessed in this filing season, over 14 million math error notices, and an eight-month backlog of taxpayer correspondence. She also reported extraordinary difficulty contacting the IRS by phone.
In addition, former IRS Commissioner Charles Rettig predicted in 2021 that the agency would lose $1 trillion in unpaid taxes, primarily owing to tax evasion by the wealthy and large corporations. In addition, he said that they might be sliding between the cracks due to the loosely regulated cryptocurrency sector, foreign source revenue, and exploitation of pass-through rules. Rettig has long advocated increased spending “to unleash the fire-breathing dragons” against cheats.
Could increasing enforcement be counterproductive?
The investment, according to proponents, would help bridge the “tax gap” by catching more tax evaders.
$45.6 billion of the total $80 billion has been allocated for greater enforcement, which will be used to hire additional enforcement officers, provide legal support, and invest in “investigative technologies” to identify who should be audited and who should not.
However, not everyone is enthusiastic about the news.
“They will not receive this magic money,'” Brian Reardon stated to Bloomberg. Reardon is president of the S Corporation Association, which supports privately held, small businesses that pass taxes to their owners.
According to Reardon, you engender animosity and outrage if you increase enforcement against people who otherwise obey the laws and pay what they owe. You damage the public’s faith in the tax system.
However, the Biden administration claims that the heightened enforcement would target the ultra-wealthy and major corporations, not small firms or people with an annual income of fewer than 400,000 dollars.
According to the Department of the Treasury research, the richest 1% of Americans might be evading as much as $163 billion in annual taxes.
Even though Eli Akhavan, a partner at Steptoe & Johnson in New York, anticipates an increase in audits, he has been assuring his rich clients that they have nothing to worry about other than minor headaches so long as they follow the sound counsel and have their “ducks in a row.”
Akhavan states if there is nothing to discover, there is nothing to discover.