Posted on 10/31/2023 8:52:00 AM PDT by SeekAndFind
IRS Commissioner Danny Werfel faced a grilling by lawmakers on Capitol Hill this past week, where he hinted that there's a chance that the agency will—contrary to its repeated pledges—increase tax audits of Americans earning under $400,000.
The question of whether the IRS will use some of the $80 billion or so funding boost to increase tax enforcement of people making less than $400,000 has been a contentious issue.
IRS and Treasury Department officials have pledged not to increase audit rates for this group of Americans, while Republicans and others have argued that this pledge is either false or wishful thinking.
Treasury Secretary Janet Yellen has directed the IRS not to raise audit rates above historical levels for this group of taxpayers, while Mr. Werfel has repeatedly made the same pledge.
But a watchdog recently cast doubt on this promise, warning that Americans making less than $400,000 could inadvertently get caught in an enforcement dragnet because the IRS doesn't have a clear definition of "high-income" and its enforcers use an outdated $200,000 high-income threshold as their default.
Meanwhile, the latest data on the tax gap (the difference between taxes owed and paid to the government) show that it has jumped from $601 billion to $688 billion, putting pressure on the IRS to ramp up enforcement and bring in more money for all the Biden administration's big spending plans.
At the Oct. 24 hearing on Capitol Hill, Rep. Gary Palmer (R-Ala.) pointed out that former IRS Commissioner John Koskinen once testified that increasing tax audits as a way to reduce the tax gap was not an advisable strategy.
“One of your predecessors, John Koskinen, testified before this committee in 2015, and he said it would not be advisable to audit your way out of the tax gap, yet that’s exactly what you’re trying to do,” Mr. Palmer said.
In a bid to increase tax collections, the IRS has vowed to increase tax enforcement on corporations and high-income filers in a "sweeping, historic" crackdown on what it says are wealthy tax evaders.
In his line of inquiry, Mr. Palmer implied that the IRS' appetite to boost collections would mean some lower-earning Americans could get caught up in that effort.
Mr. Werfel said he had instructed staff at the IRS not to raise audit rates for lower-earning Americans but hinted that there's some chance this could (inadvertently) happen, and only time will tell.
After Mr. Palmer questioned Mr. Werfel, Rep. Virginia Foxx (R-N.C.) pressed the IRS chief to explicitly guarantee that the IRS wouldn't raise audits on Americans making less than $400,000.
“The so-called Inflation Reduction Act gave the IRS an additional $80 billion in funding. I think we can all agree that that’s an incredible amount of money. Even after Congress trimmed this amount down to nearly $60 billion in the Fiscal Responsibility Act, how many new agents does the IRS plan to hire?” she asked.
Mr. Werfel sought to deflect by focusing on all the other hires that the IRS is planning.
“We’re hiring not just agents. We’re hiring customer service reps, accountants, agents," he said. "We have published our three-year view of staffing, which I’m very confident on because I can make key assumptions about needs and market trends. We are at 90,000 today, and I think over the next three years, we should be over 100,000, but not much over 100,000."
Asked how many tax enforcement agents there would be among this figure, Mr. Werfel replied: “We should be hiring about 8,000 total by the end of 2025.”
“You are guaranteeing that you will not increase the number of audits of people making less than $400,000 a year?” Ms. Foxx then asked.
“That is my marching order to the IRS," Mr. Werfel replied before adding that "if we fall short of that, I will be held accountable for it," hinting that, even with the best of intentions, there's a chance that the IRS might fail to make good on this promise, much like the watchdog has warned.
"But we will publish those rates,” Mr. Werfel added, referring to tax audit rates for Americans earning less than $400,000, suggesting that time will tell how closely the agency's growing army of tax enforcers will follow his orders.
"A little while ago, you said you had control of the IRS," Ms. Foxx said. "So we'll come back to you with that," she added, suggesting that Republicans intend to hold Mr. Werfel to account over the $400,000 tax audit pledge.
Some time ago, the Treasury Inspector General for Tax Administration (TIGTA), which is the watchdog overseeing the IRS, carried out a review to assess the IRS's strategy to train employees hired to audit high earners and big businesses that underreport income.
The watchdog report includes scathing criticism of the IRS for lacking a clear definition of "high-income" earners—despite the very same watchdog asking the IRS to look into developing a better definition years ago.
"The IRS does not have a unified or updated definition for individual high-income taxpayers," the watchdog said in the report, which notes that the IRS uses different definitions of "high-income" depending on context as various IRS programs address different compliance issues across different parts of the filing population.
"The high-income terminology is being used loosely inside the IRS with no common understanding of what the term means,” the watchdog said.
The watchdog recommended in 2015 that the IRS reevaluate the appropriate income thresholds for its high-income and high-wealth strategy.
But despite its recommendation to the IRS nearly a decade ago to reevaluate its income thresholds, the IRS "made no changes," the watchdog said, noting that the tax agency cited "internal data analysis results and resource constraints."
Further, the IRS continues to rely on old tax examination activity codes adopted half a century ago with the Tax Reform Act of 1976, which used a $200,000 threshold to measure high-income returns.
"This amount is equivalent to more than $1 million in 2023, but the IRS still uses $200,000 as the default high-income threshold," the watchdog said, adding that the $200,000 threshold is "no longer a reasonable standard for high earners given inflation since 2005."
Generally, the IRS uses the examination activity codes to plan the number of tax-related examinations, although, since 2019, its Large Business and International (LB&I) division has been using a modified planning method based on resource allocation.
One of the watchdog's recommendations was for the IRS to establish a definition for high-income taxpayers for examination compliance purposes and that, “at a minimum, the IRS should accept the Treasury secretary’s $400,000 directive as the new high-income floor on which IRS leadership can focus enforcement efforts.”
The IRS disagreed with the watchdog's recommendation. It asserted in a statement included in the report that a "static and overly proscriptive" definition of high-income taxpayers for audit purposes "would serve to deprive the IRS of the agility to address emerging issues and trends."
The watchdog commented on the IRS' pushback, saying that the definition need not be "static" and income thresholds should be adjusted based on economic and complexity factors—otherwise, there's a risk that the agency will break its pledge not to audit more Americans earning less than $400,000.
"When the high-income thresholds are set too low, the result can be higher numbers of inefficient examinations," the watchdog said. "When the definition is too low, the base of taxpayers earning those incomes is wider so that the IRS does many more audits in that category in order to achieve desired audit coverage."
The watchdog said that, under the circumstances of a lack of a clear definition of "high-income," the IRS would not only be conducting more audits on lower-earning Americans (contrary to its pledge not to), but it would also be less effective in its stated goal of closing the tax gap.
The watchdog also said that the IRS's lack of action in response to the TIGTA recommendation in 2015 to reevaluate its income thresholds means that the IRS is in a difficult position if it hopes to meet its pledge not to raise audit rates above historical norms for Americans earning less than $400,000.
Currently, "there is no way to identify the complete population of taxpayers that meet the criterion of $400,000 or more specified by the current Treasury Secretary," the watchdog added.
The IRS partially agreed with the watchdog's recommendation to refine its examination activity.
"The IRS agreed to identify the best method to identify and track high-income examinations as part of the work being undertaken to implement the Treasury Secretary's directive to not increase audit rates for households making less than $400,000 and small businesses," the IRS said in a statement included in the report.
But the watchdog responded by saying this isn't good enough.
"The IRS's partial agreement and planned corrective action will not satisfy the intent of our recommendation, and additional actions are needed," TIGTA said in a comment.
"The IRS should establish examination activity codes for additional TPI increments, which will help the IRS identify noncompliance at different income levels," the watchdog added. TPI stands for "taxpayer profile increment."
When The Epoch Times asked the IRS for comment on the watchdog's rejection of the IRS's response to its recommendation, the tax agency pointed to its original response included in the report.
I am SHOCKED I tell ya, just simply SHOCKED!! When has Joe Biden NOT BEEN a LYING POS?? Congress needs to DEFUND these bastards!!! Cut their budget to the bare minimum!!!
I’m shocked too.
AND next we’ll discover they’ll be going after conservative Americans... and we’ll all be ‘shocked’ to discover that too. /s
Thank you, Kane!
Bump!
Have they audited the Biden crime family?
The more refined functions of mining data require minimal manpower. They require hardware, software, and electricity. People….not so much.
The backbone of our government - its core functions across all agencies - will be AI. All agencies use data, some more than others.
The reason this is kept under wraps is that if we knew how much money they were saving they’d have to severely cut tax rates. That’s never going to happen.
Blood-Turnip.
Deep State is coming for the middle class.
————
That is exactly how “ revolutions “ occur. In their hunt for more revenue , they unknowingly slit their own throats. History shows this time, and time again. Say I am crazy, but when I heard they hired 60,000 more tax revenue agents I jumped for joy! ……be sure to get the IRS agents names when they go after you, post on social media, then let “ justice” ( and history) run it’s course.
We don’t need what amounts to about 6 divisions of new IRS agents. All of them have to be doing something to justify their paychecks.
I’m disgusted, but this is the country we’re living in.
“he 16th was passed with the argument that it was only a tax for millionaires”
Civil asset forfeiture was just for drug kingpins.
Weaponizing the FBI/DOJ is just for Trump.
$400,000 gross.
If you make $80,000 after expenses, you might have $20,000 in legal fees for an audit, plus whatever taxes and fees the auditor makes up. You will make less than a welfare queen while facing the threat of prison.
In before Gomer Pyle?
I read it and I missed where there was a hint as indicated in the headline.
IRS already made clear they were going to pursue lower income taxpayers, when they did that thing targeting tips.
who wants some richy rich fighting a speeding ticket or dwi in court over months when you can get Mr. and Mrs average to just pay up...
and don't even bother with the junkers....they won't pay anything....
so same with the IRS....most middle working class are honest, America believing people, or we used to be.....we'll pay...
BJ Clintoon listed used underwear at a high price and gets away with it as a donation to charity....a regular average guy would probably catch the attention of the feds....
Hitting the people who can’t afford a defense, tax attorney or accountant to help them fight the IRS Investigator.
“Hey, Mr Jones, you were short $1000, pay up or face more penalties”
Pretty soon, a $1000 here and a $1000 there, adds up to some big money to pay for all the illegals.
Or, if your Gates or Buffett and everything you make is tied to a business, the business can spend millions on tax attorneys to fight. Then the money spent on the attorneys is used a deductions on the companies tax returns, thus reducing the companies tax burden, the tax attorney’s are happy making their $1000 an hour and the IRS and taxpayer lose because the tax attorney’s are better than the government clowns.
Yes, the Democrats are all about the working man and middle class.
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