For years, the National Taxpayer Advocate has cited the deleterious impacts of an underfunded IRS. The Taxpayer Advocate Service (TAS) is an independent body within the IRS that advocates for taxpayers and businesses in their dealings with the IRS. At first blush, a teetering IRS may seem useful to those who resent paying taxes. Yet the lack of budget packs a bite that does not necessarily correspond with reduced enforcement efforts—just slower or non-existent service.
In a 2012 report, the TSA identified chronic issues caused by underfunding of the IRS, including:
The 2012 report refers to the 2006 TAS Annual Report to Congress which cited similar concerns. Yet Congress continued to decrease the IRS budget or refuse to provide adequate funding, while expecting the IRS, the largest agency of the U.S. Treasury, to perform as required. In 2020, the IRS distributed pandemic-mandated relief measures without technological or workforce relief.
Enacted in August, the Inflation Reduction Act provides $79.6 billion to the IRS over the next decade. Treasury Secretary Janet Yellen immediately directed IRS Commission Charles Rettig to develop a plan within six months that implements four priorities, which include:
As to the question on everyone’s mind—Secretary Yellen cautioned Mr. Rettig that additional funds provided to the agency “shall not be used to increase the share of small business or households below the $400,000 threshold that are audited relative to historical levels. This means that, contrary to the misinformation from opponents of this legislation, small business or households earning $400,000 per year or less will not see an increase in the chances that they are audited.”
Added Secretary Yellen, the IRS is directed to “pursue a robust attack on the tax gap by targeting crucial challenges, like large corporations, high-net-worth individuals and complex pass-throughs, where today the IRS has resources to initiate just 7,500 audits annually out of more than 4 million returns received.”
Proper funding of the IRS is essential to the proper governance of the United States. This legislation is also a heads-up that we may see a change in enforcement priorities of the IRS toward high-wealth taxpayers and corporations engaged in questionable offshore tax activities, tax fraud, and other tax controversies.
Serving local and international clients from offices in Chicago and Cleveland, the legal team at Robert J. Fedor, Esq., LLC delivers strategic representation and guidance with compliance questions, tax litigation, or payroll tax issues. Call 800-579-0997 or contact us online today.