IRS’s New $80 Billion Plan Will Change How Everyone Pays Taxes — Especially the Rich

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The Internal Revenue Service (IRS) released its much-anticipated report on how it plans to deploy the $80 billion allocated to the agency under the administration’s Inflation Reduction Act. One of the IRS’ objectives is to increase the focus of its audits on wealthy Americans, according to the report.

“We will improve our efforts to help ensure that the proper amount of tax is paid and to promote future compliance,” the agency said in the report. It added that pursuant to Treasury’s directive, small businesses and households earning $400,000 or less will not see audit rates increase relative to historical levels.

“We will increase our focus on segments of taxpayers with complex issues and complex returns where audit rates are minimal today, such as those related to large partnerships, large corporations, and high-income and high-wealth individuals,” the IRS said, adding that the use of modern data analysis tools can greatly streamline these efforts.

According to the report, more than half- $47.4 billion — of the total budget will be allocated to this effort, with $41.7 billion of this dedicated to enforcement alone.

“The rising breadth and complexity of tax administration, coupled with the sophisticated ways that some taxpayers attempt to evade tax, have outpaced our resources and ability to monitor compliance and close the gap between taxes owed and collected,” the IRS said.

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As Politico notes, the IRS did not detail how it plans to align with Treasury Secretary Janet Yellen’s pledge to not increase audits on those making under $400,000.

“That’s a real challenge — first to determine who is safe from the pledge without actually doing an audit to determine if their true (actual) income is below $400,000 and then second, to determine the appropriate ‘historical’ audit rate to apply to taxpayers with income below $400,000,” Tax Policy Center’s Janet Holtzblatt told Politico.

Additional objectives of the IRS include updating and modernizing its technology, hiring more personnel and improving its customer service to make it “world class.”

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The Congressional Budget Office estimates that the additional $80 billion provided to the IRS by the IRA will increase federal revenue by more than $180 billion, according to the report.

National taxpayer advocate Erin Collins said in a blog post that while she supports the IRS’ plan, funds were “disproportionately allocated to enforcement.”

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“I believe Congress should reallocate IRS funding to achieve a better balance with taxpayer service needs and IT modernization,” Collins said in the post.

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About the Author

Yaël Bizouati-Kennedy is a full-time financial journalist and has written for several publications, including Dow Jones, The Financial Times Group, Bloomberg and Business Insider. She also worked as a vice president/senior content writer for major NYC-based financial companies, including New York Life and MSCI. Yaël is now freelancing and most recently, she co-authored  the book “Blockchain for Medical Research: Accelerating Trust in Healthcare,” with Dr. Sean Manion. (CRC Press, April 2020) She holds two master’s degrees, including one in Journalism from New York University and one in Russian Studies from Université Toulouse-Jean Jaurès, France.
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