Treasury Secretary Janet Yellen directed the Internal Revenue Service (IRS) not to use any of the new funding allocated in the Democrats’ new health care and climate bill to increase the number of audits of Americans making less than $400,000 a year.
“Specifically, I direct that any additional resources—including any new personnel or auditors that are hired—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,” wrote Yellen in the letter. “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.”
The letter to IRS Commissioner Charles Rettig comes amid attacks from Republicans that the around $80 billion the Inflation Reduction Act would give to the IRS over the next 10 years would result in more middle-class Americans and small businesses getting audited.
The Biden administration has repeatedly said the IRS would focus on increased enforcement activity on high-wealth taxpayers and large corporations.
So, What’s Really in the Package for IRS?
According to a report by the nonpartisan Congressional Budget Office, the package proposes:
Around $80 billion boost to IRS funding to be phased in over 10 years
$45.6 billion allocated towards beefing up enforcement
Expected to bring in $203.7 billion over about a decade
Republicans have raised concerns that beefing up the agency could lead to audits that negatively target lower- and middle-income earners, which the Biden administration has repeatedly denied.
Where the IRS Stands Now
Currently, the IRS has just over 78,000 total full-time employees doing all of the business of the Agency. According to John Koskinen, who served as IRS commissioner from 2013 to 2017, that’s down from around 100,000 when he first started.
A Treasury Department report from May 2021 estimated that such an investment would enable the agency to hire roughly 87,000 employees by 2031. But most of those hires would not be Internal Revenue agents and wouldn’t be new positions.
According to a Treasury Department official, the funds would cover a wide range of positions including IT technicians and taxpayer services support staff, as well as experienced auditors who would be largely tasked with cracking down on corporate and high-income tax evaders.
“It is wholly inaccurate to describe any of these resources as being about increasing audit scrutiny of the middle class or small businesses,” Natasha Sarin, a counselor for tax policy and implementation at the Treasury Department, told Time magazine.
The IRS will have to recruit and train thousands of employees who have the necessary skills to audit high-income taxpayers and corporations, as well as those who are able to upgrade the agency’s technology.
More than half of the agency’s current employees are eligible for retirement and are expected to leave the agency within the next five years. “There’s a big wave of attrition that’s coming and a lot of these resources are just about filling those positions,” says Sarin, an economist who has studied tax avoidance extensively and who was tapped by the Biden administration to beef up the IRS’s auditing power.
In all, the IRS might net roughly 20,000 to 30,000 more employees from the new funding, enough to restore the tax-collecting agency’s staff to where it was roughly a decade ago, according to a Time account.
Senate Weighs In
Senate GOP members could still stymie some of the IRS funding. Congress revisits the appropriations for the IRS at least once a year through the Financial Services and General Government appropriations bill.
This appropriation bill is often passed as part of a Continuing Resolution (CR) or by an Omnibus bill each of which lumps multiple spending bills together. To pass a CR or Omnibus bill doesn’t require 51 votes, but instead needs the 60 votes to overcome a filibuster in the Senate, meaning that 41 GOP Senators can simply just say no to the dramatic expansion of the IRS by refusing to fund it.
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What’s Ag’s Stake in the Senate-Passed Inflation Reduction Act?
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