Tax Enforcement and You…and Me…and Everyone Else

tax enforcementAnalysis from across the board finds that defunding the Internal Revenue Service (IRS) impacts compliance. In turn, tax fraud increases and the tax gap does, too. Do you care?


There are few people who do not appreciate when their accountant finds a loophole or provision that will save them a few bucks or a small fortune. As tax attorneys, we are pretty knowledgeable about protecting wealth and strategies to strengthen its growth. It’s all good. But what happens when the primary agency tasked with collecting the funds that run our federal administrative functions falters?


In February of this year, Chye-Ching Huang, Senior Director for Economic Policy at the Center on Budget and Policy Priorities (CDPP) testified before the House Ways and Means Committee. If you have some time, the report is an eye-opener. Among its points:

  • Since 2010, IRS funding has dropped approximately 21 percent.
  • The overall audit rate has fallen 45 percent.
  • The number of agents with the ability to conduct complex audits has declined 35 percent.
  • The audit rate for high-asset filers and high asset corporations (defined as over $1b in assets) has dropped 61 and 51 percent respectively. Large corporate audits have been cut by 50 percent and pass through audits are down as well.


While you might be doing a little sideline cheer about now (those are great odds for high-wealth individuals--your chance of being caught up in an IRS civil audit is going down almost every year), there are consequences. Let’s look at some of those:

  • In the US, tax compliance is largely voluntary. As the visibility and activities of the agency tasked with maintaining vigorous compliance recedes, the tax gap grows. Approximately $441b of taxes due are not paid on time or voluntarily.
  • Tax changes in 2017 boosted tax cuts for the wealthy and did not productively address expansion of the Earned Income Tax Credit (EITC), an important tool for low- and moderate-income households (the “middle” income space is hollowing out).
  • The CDPP report notes defunding the IRS enforcement effort amount to what “Former IRS Commissioner John Koskinen called “tax cuts for tax cheats.”


Good governance is a good thing, but it is not free. In addition to recommendations in the CDPP report, the IRS offers its own strategic priorities in handling an increasingly complex tax base.  While there is bipartisan agreement that defunding the agency that provides the funds on which federal programs survive is not a good long-term solution, there has been no practical action. The tax gap widens, the middle class disappears, and governmental and social programs decline. While there is movement, it is all in the wrong direction.


Facing a tax controversy? Our knowledgeable tax attorneys can help you nationwide or abroad

From offices in Cleveland and Chicago, the tax team at Robert J. Fedor, Esq., LLC delivers aggressive legal protection if you are dealing with allegations of tax fraud, offshore tax schemes, or a tax crime. Contact us today or call 800-579-0997.


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