Cutting Through the Misinformation About The IRS

Cutting Through the Misinformation About The IRS’s
Plan To Spend $80 Billion
From TPC (Tax Policy Center) – by Howard Gleckman & Janet Holtzblatt – 01SEP2022
Understanding how the Inflation Reduction Act (IRA) will affect the Internal Revenue
Service’s operations requires wading through a swamp of misinformation,
disinformation, and no information.
But to cut through much of the political noise, here are the facts we know and some key
questions about how the IRS will spend the substantial new funding provided by the
new law.
About the big picture. Here’s what we know for certain: The law provides about $80
billion in new IRS funding over the next decade. Congress wants $46 billion to be used
for enforcement, $3 billion to improve taxpayer services, and the rest for improving the
agency’s infrastructure, including its rickety technology.
But Congress did not tell the IRS exactly how to spend that money. After critics
circulated scary stories about what the IRS would do with $80 billion, Treasury
Secretary Janet Yellen instructed the agency to develop a detailed plan—within six
months.
About those audits. From the moment the Biden Administration announced its
proposal to boost the IRS’s budget, it’s been consistent on one point. Some of the new
money will be used to increase enforcement against the very wealthy and big
businesses.
This is as it should be: The audit rate of people with an annual income of at least $1
million fell from 8.4 percent in 2010 to 2.4 percent in 2019. Once, nearly all the country’s
largest corporations were audited. Now only about half are.
Treasury insists audit rates would not increase relative to recent levels for taxpayers
with income below $400,000. Four of those words—relative to recent years—opened
the door for critics to warn the IRS would use the new money to go after middle-income
households.
Treasury could clarify this by defining what it means by recent audit levels. But it hasn’t.
In 2019, just 0.4 percent of all individual returns—about 700,000—were audited. Is the
goal to restore the 2010 audit rate of 1.1 percent? Or 2015’s rate of 0.8 percent? And
how would those audits be conducted—in a meeting between the taxpayer and an IRS
auditor to go over each line in the return or through correspondence and focused on just
a few items? Currently about 80 percent of individual audits are done by mail.

Maybe the better question is what is the optimal audit rate and method, given the new
resources?
Next question: Does the IRS plan to use less burdensome tools in its enforcement
arsenal, short of audits?
For example, the agency currently matches Forms W-2 and 1099 to individual income
tax returns. If it finds a discrepancy above a threshold dollar amount, it will notify the tax
filer.
In 2018, the IRS received 2.8 billion information returns and detected 22.3 million
discrepancies. But it could afford to select just 2.9 million of the mismatches for further
review. That’s about half the rate of a decade ago. Should that historic rate be restored?
About those 87,000 armed agents. In May 2021, the Biden Administration projected
the IRS would hire 86,852 new employees over the next decade if Congress approved
the $80 billion. But it never provided a detailed breakdown of what types of positions
would be filled.
Republicans filled the information vacuum with the specter of 87,000 armed IRS agents
terrorizing innocent people.
That’s ludicrous. Less than 3 percent of IRS employees are authorized to carry
weapons. They are agents of its Criminal Investigations unit whose targets typically are
drug dealers, money launderers, and others suspected of serious, often-violent, crimes.
The IRS is currently hiring about 300 more.
And the critics willfully ignored some breadcrumbs in those 2021 Administration
estimates: Some of those new hires would work in taxpayer services or technology.
More recently, Administration officials asserted that 50,000 of the new hires would
replace retirees.
Still unanswered: Will the new hires do the same work as the people they are replacing,
or will the IRS create new positions more suitable for the 21 st century? The answer has
implications for the type of agency the IRS will be in the future.
About hiring. Senator Rick Scott (R-FL) warns people not to take jobs with the IRS. If
Republicans take Congress in January, he says, the $80 billion will be history and those
new hires will lose their jobs. Well, that’s not true. Biden still would hold the veto pen,
and civil service rules make it hard to fire government workers.
But it already is tough for the IRS to hire in today’s competitive market. At the last
minute, Congress dropped from the IRA provisions that would have made it easier for
the IRS to recruit. But Congress can restore that language in future spending bills, and
the Office of Personnel Management has discretionary authority to do the same.

About the consequences. Disinformation, misinformation, and no information have
consequences. The scariest has been increasing threats against IRS employees,
causing the agency to review its security procedures for the first time since the 1995
bombing of the federal building in Oklahoma City.
And that raises the biggest question of all: Who will take a job at the IRS with a target
on their back?
Posts and comments are solely the opinion of the author and not that of the Tax Policy
Center, Urban Institute, or Brookings Institution.