Gov't watchdog shreds Biden promise that $80 billion in new IRS funding wouldn't lead to more audits on average Americans



The official watchdog of the Internal Revenue Service admitted in a new report there is no realistic way to prevent the IRS from increasing audits on average Americans unless the agency takes immediate action.

What is the background?

Last year, the Inflation Reduction Act — which was not actually designed to reduce inflation — gave the IRS $80 billion in new funding. That funding would be used to hire 87,000 new agents over the next decade and to increase tax enforcement.

In response to criticism from Americans of all political views, the Biden administration promised that none of the money would be used to increase the number of audits on American households or small businesses earning less than $400,000 per year.

What did the TIGTA say?

The Treasury Inspector General for the Tax Administration, the official IRS watchdog, said in a report dated Aug. 31 the IRS cannot fulfill its promise, in part, because the agency defines high-income taxpayers as those earning more than $200,000 of total positive income per year.

"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 report explains.

The $200,000 threshold for high-income earners was set in 1976. When adjusted for inflation, that threshold would be more than $1 million today. Because of this issue, the TIGTA recommended the IRS establish a definition of high-income taxpayers in compliance with its promise. But the agency refused and cited concerns of "agility."

The IRS told the TIGTA:

The IRS disagreed with this recommendation. It asserted that a static and overly proscriptive definition of high-income taxpayers for purposes of focusing on income levels above which taxpayers have unique and varied opportunities for tax would serve to deprive the IRS of the agility to address emerging issues and trends.

The motive for hiring more IRS agents was to increase tax enforcement against wealthy Americans who use the extensive tax code for their benefit.

Definition problems aside, the TIGTA report said that increasing enforcement on wealthy Americans will be difficult because the agency does not have enough agents who know how to parse the financial data of high-income taxpayers.

Importantly, the TIGTA found that audits of high-income taxpayers, no matter the definition, have not yet increased.

"Our analysis disclosed no significant increase in the number of high-income individual return audits," the report said.

"[D]espite congressional encouragement to examine individual high earners and the former Treasury Secretary’s directive, most examinations were not focused on high-income taxpayers," the inspector general emphasized.

Therefore, at present, the TIGTA said, "[W]e see no direct effort to increase examinations of individual high earners."

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Report: Almost half of 2021 IRS audits targeted poorest taxpayers



The Internal Revenue Service targeted the nation's lowest-income taxpayers in nearly half of its audits last year, an eye-opening new report shows.

What are the details?

The report, published Tuesday by the Transactional Records Access Clearinghouse, found that approximately 307,000 of the IRS' 660,000 audits from fiscal year 2021 were from among taxpayers who claimed the Earned Income Tax Credit, a credit designed to give low-income workers a tax break.

The strange targeting resulted in "low-income wage earners with less than $25,000 in total gross receipts being audited at a rate five times higher than for everyone else," TRAC said.

TRAC is a nonprofit and nonpartisan data gathering organization at the S.I. Newhouse School of Public Communications at Syracuse University that collects and distributes data from federal agencies.

In 2021, Americans with total positive income $200k to $1M were audited at the rate of 4.5 out of every 1,000. \n\nAmericans with less than $25,000 in total gross receipts were audited at a rate of 13.0 out of every 1,000.\n\nRead the report here: https://trac.syr.edu/tracirs/latest/679/\u00a0\u2026
— TRAC Reports (@TRAC Reports) 1646759354

What else?

The report also found that taxpayers with a total yearly income of between $200,000 and $1,000,000 had only one-third the odds of being audited in comparison to the lowest-income wage earners.

Nearly 9 million taxpayers reported those high-income levels, yet less than 40,000 of their returns, or 4.5 out of every 1,000, were audited by the IRS, the report said. The lowest-income earners were audited at a rate of 13.0 out of every 1,000.

The audit rate for poorer taxpayers was shockingly more comparable to the audit rate for those reporting earnings over $1 million. Out of 617,505 millionaire returns, 13,725 were audited, or 22 out of every 1,000.

Austin Kocher, an assistant professor at TRAC reports and Syracuse, called the audits clearly "unfair" in a statement on Twitter.

During FY 2021 IRS revenue agents and tax examiners audited 13,725 taxpayers reporting $1 million dollars or more in positive income, up from the small numbers audited during FY 2020 (11,331), but still slightly below FY 2019 (13,970).
— Austin Kocher, PhD (@Austin Kocher, PhD) 1646756629

Anything else?

"Does it make sense from either an equity or revenue standpoint to focus IRS’s limited firepower on the poorest taxpayers among us — those with incomes so low they have filed returns claiming an anti-poverty earned income tax credit?" TRAC asked in its report, adding, "This question alone raises profound issues."

Given the sheer amount of resources at stake, it seems odd that the IRS wouldn't exhaust more of its manpower on audits of wealthy Americans.

The organization noted, however, that such a bias toward IRS auditing of poorer Americans is not necessarily a new phenomenon. Rather, the bias has been demonstrable for decades, though to varying degrees.

Part of the problem, TRAC explained, is a lack of IRS revenue agents with sufficient training and experience to examine complex tax returns typically filed by high-income individuals and large-scale businesses.

(H/T: Daily Wire)