The Democrats’ most recent health care and climate spending bill includes an increase of $ 80 billion for the Revenue Agency which aims to help the agency crack down on wealthy tax frauds. However, Republican critics say a larger IRS could ultimately harm low-income Americans.
Providing the IRS with an influx of funding was a top priority for President Biden. He emerged as one of the most prominent funders of the Inflation Reduction Act that Senate Majority Leader Chuck Schumer, DN.Y., and Senator Joe Manchin, DW.Va., unveiled last week.
Democrats have predicted that increased IRS funding could add an extra $ 124 billion in federal revenue over the next decade by hiring more law enforcement to limit tax evasion by wealthy individuals and corporations. According to an estimate from IRS Commissioner Chuck Rettig last year, approximately $ 1 trillion in federal taxes are not paid annually due to errors, fraud, and a lack of resources to properly enforce collections.
But GOP lawmakers have sounded the alarm over the proposal, warning that it could have serious ramifications for low-income workers.
THE MINIMUM TAX ON SOCIETY FOR DEMOCRACY WOULD BE MORE DIFFICULT THESE INDUSTRIES
This is because the IRS disproportionately targets low-income Americans when it conducts tax audits every year. In fact, households with less than $ 25,000 in income are five times more likely to be agency audited than anyone else, according to a recent analysis of fiscal year 2021 data by the Transactional Records Access Clearinghouse (TRAC). of Syracuse University.
The reason for this is an increase in what are known as “correspondence checks,” which means that the IRS conducts tax return reviews via letters or phone calls rather than more complex face-to-face audits. Only a fraction – 100,000 of the 659,000 audits in 2021 – were conducted in person.
According to the Syracuse study, more than half of the correspondence audits initiated by the IRS last year – 54% – involved low-income workers with gross income of less than $ 25,000 who claimed the earned income tax credit. , a measure against poverty.
Taxpayers with total positive income ranging from $ 200,000 to $ 1 million were also one-third as likely to be vetted by the IRS compared to lower-income employees. About 9 million taxpayers reported these high income levels in 2021, but fewer than 40,000 of their returns were checked, or about 4.5 in 1,000. This contrasts sharply with low-income Americans, who faced an audit rate of 13 out of 1,000.
THE STRATEGIES, THE TAX EXPERTS THINK THE IMPLICATIONS OF THE INVOICE INSURED BY MANCHIN ON MEDIUM-TERM ELECTIONS
The discrepancy is mainly due to the fact that high-income taxpayers have complex investments that can easily bridge the gap between taxes due and paid versus taxes declared and paid.
“Barring an unlikely significant change in the composition of the IRS enforcement, the enhanced IRS enforcement would subject taxpayers across the income spectrum to greater scrutiny and greater audit risk,” the right-wing Heritage Foundation said. in a recent blog post.
The Heritage Foundation noted that most of the IRS’s individual audit exams target taxpayers who report less than $ 50,000 in adjusted gross income. Although that group earns considerably less revenue than others, it faced IRS-recommended tax adjustments of about $ 3.4 billion in fiscal 2010. This compares to about $ 3.7 billion for those Americans who report more than $ 50,000.
The IRS said it will not increase audits on households earning less than $ 400,000 if the $ 80 billion in funding is approved.
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“These resources are absolutely not about increasing audit control over small businesses or middle-income Americans,” IRS commissioner Retting wrote in a letter to lawmakers Thursday. “As we have planned, our investment in these enforcement resources is designed around the Treasury’s directive that audit rates will not increase over the past few years for households earning less than $ 400,000.”