“According to the Congressional Research Service (CRS), the Inflation Reduction Act directs the $80 billion in additional IRS funding to the following four enumerated divisions: “enforcement” ($45.7 billion), “operations support” ($25.3 billion), “business systems modernization” ($4.7 billion), and “taxpayer services” ($3.2 billion)”
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“The Treasury Department spokesperson would have us believe that 50.01 percent of newly created positions funded by this $80 billion injection will work in the divisions receiving just 10 percent of the money.”
“Democrats’ new climate, health care, and tax package — known as the Inflation Reduction Act — includes nearly $80 billion in new funding for the IRS, which is supposed to help the chronically underfunded agency staff back up and boost enforcement measures to collect unpaid taxes from wealthy Americans.
The funding has become a political flashpoint in recent days among conservatives and some business groups, who have falsely claimed that the IRS will use the money to hire an “army” of 87,000 new agents who will target average taxpayers.”
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“Administration officials have reiterated that they will focus enforcement efforts on wealthy Americans and large corporations.”
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“The IRS’s budget has been cut by nearly 20 percent since 2010, impacting the agency’s ability to staff up and modernize half-century-old technology. In 2010, the IRS had about 94,000 employees. That number dipped to about 78,000 employees in 2021. Some of the agency’s computers still run on COBOL, a programming language that dates back to the 1960s.
Since 2010, the agency’s enforcement staff has declined by 30 percent, according to IRS officials, and audit rates for the wealthiest taxpayers have seen the biggest declines because of years of underfunding. The new bill is an attempt to change that.”
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“The new funding is intended to help reduce the “tax gap,” or the difference between what people pay in taxes and what they owe in taxes, which the Treasury Department estimates is about $600 billion annually. The new money could help the IRS increase revenue by about $200 billion over the next decade, according to a Congressional Budget Office estimate, although the exact amount is hard to calculate and highly uncertain.
Natasha Sarin, a counselor for tax policy and implementation at the Treasury Department, said that for Americans making less than $400,000 a year, their chances of being audited wouldn’t increase from typical levels in recent years.
Instead, Sarin said, average taxpayers should have an improved experience filing their taxes because the funds would allow the agency to add staff. In the first half of 2021, there were fewer than 15,000 employees available to answer nearly 200 million calls, which is one person for every 13,000 calls, according to Treasury Department figures.”
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“As a result of reduced staffing at the IRS, audit rates of individual income tax returns decreased for all income levels from 2010 to 2019, according to a recent Government Accountability Office report. Audit rates decreased the most for taxpayers with incomes of $200,000 or more.”
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“A 2018 analysis by ProPublica found that while audits had declined most dramatically for the wealthy, the IRS continued to audit the lowest-income filers — recipients of anti-poverty tax credits, including the earned income tax credit — at relatively high rates.
Over the last decade, audit rates for multimillionaires have decreased by twice as much as audit rates for the lowest-income families who receive the EITC because it requires more resources to go after top earners, Sarin said.
The funding should allow the IRS to better target wealthy earners who aren’t paying their taxes because the agency will be able to upgrade its technology, Sarin said, reducing the chances that compliant taxpayers would be audited.
Janet Yellen, the Treasury secretary, reaffirmed similar commitments in a letter to the IRS commissioner last week.
“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,” Yellen wrote.”
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“Budget cuts and reduced capacity have led to a significant backlog of unprocessed tax forms. As of the beginning of August, the IRS had a backlog of 9.7 million unprocessed individual 2021 returns.”
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“Sarin said the IRS would focus on hiring employees who have experience working with complex tax filings from large corporations and high-net-worth individuals. Audits of average taxpayers follow a significantly different process, she said.”
“I interviewed a prominent tax attorney who had spent years at the IRS and she confirmed what others have reported. When the IRS determines that someone owes money, it sends out threatening letters, but then the targeted person has no actual recourse or due process. The IRS hotline only is capable of handling a tiny percentage of calls.
One typically must spend hours on hold to speak to someone at the IRS, only to receive incomplete and conflicting answers. The agency doesn’t have a modern online system that allows taxpayers to handle most of these matters efficiently. In the past, if the IRS issued a levy it would include the name of a revenue officer that a taxpayer could contact. Now the IRS uses bots—and it typically takes months to get an answer via mail.
Here’s a typical scenario. The IRS determines that you owe a large sum of money. You and your accountant can’t get through to an agent. The agency places a lien on your property, freezes your bank account, or garnishes your wages. The only way to resolve the issue is to hire an attorney and spend thousands of dollars to get your day in court.”
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“Only a tiny portion of the new spending goes for improvements in the agency’s customer-service system or for technology upgrades.”
“”Contrary to the misinformation from opponents of this legislation,” Treasury Secretary Janet Yellen wrote in a letter to IRS Commissioner Charles Rettig Wednesday, “small business or households earning $400,000 per year or less will not see an increase in the chances that they are audited.” Rettig had echoed the language of his boss in a letter of attempted reassurance to the Senate on August 4, albeit with more wiggle room (italicized):
“These resources are absolutely not about increasing audit scrutiny on small businesses or middle-income Americans. As we’ve been planning, our investment of these enforcement resources is designed around the Department of the Treasury’s directive that audit rates will not rise relative to recent years for households making under $400,000.””
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“none of these assurances live in the text of the Inflation Reduction Act (IRA) itself. One Republican amendment “to prevent the use of additional Internal Revenue Service Funds from being used for audits of taxpayers with taxable incomes below $400,000″ was voted down on party lines. You’ll just have to take Democrats’ word for it.”
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“In a September 2021 letter, CBO Director Phillip L. Swagel estimated that boosting IRS funding by $80 billion would increase tax revenues by $200 billion (the number would later rise to $207 billion, before settling at $204 billion), adding that “the proposal…would return audit rates to the levels of about 10 years ago; the rate would rise for all taxpayers” (italics mine), though “higher-income taxpayers would face the largest increase.”
This remains the CBO prediction, which otherwise Democrats are happy to tout for the $204 billion revenue increase and $124 billion net reduction to the deficit ($204 billion minus the $80 billion cost).”
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“The “tax gap” that the IRS seeks to close includes large amounts from the under-$400,000 club.”
“So, the use of tax data by ProPublica and its source to make a policy point isn’t exactly groundbreaking. Some of the agents and politicians who weaponized the IRS in the past intended to make the world a better place by their lights, or at least to hurt only people and organizations they were convinced were bad. And leaks from government agencies often do achieve beneficial ends. Where would we be without Daniel Ellsberg’s copies of the Pentagon Papers, Mark Felt’s role as “Deep Throat” in the Watergate scandal, or Edward Snowden’s revelations of government surveillance?
But leaks from the IRS aren’t war plans, misuses of power, or politicians’ schemes; they’re sensitive, private financial information that we’re forced to surrender to government agents. We have no choice but to fill out our tax forms even though we know that the federal employees receiving our information have a track record of abusing that data for their own ends and to our detriment.”
“Right now, if you’re an American who wants to file your taxes without paying any additional fees to a private company or preparer, you have three options (besides limited “simple return” promotions by the big companies).
You can role-play as someone living in the 1970s and print out the 1040 tax form, along with any associated schedules or forms for tax credits and deductions for which you may be eligible, and compute it all by hand, meticulously collating physical copies of your W-2 and 1099 income statements and any other documentation you need.
Your second option is only slightly less tedious: You can use Free File Fillable Forms, a free service implemented by Intuit that simply copies the physical IRS tax forms and makes them “fillable” so you can type in the numbers. It’ll even do some basic math for you. But you still have to manually enter everything, you can’t import PDFs of your W-2 or other statements, and it’s easy to get confused about exactly which forms you’re expected or required to fill out. I’m an IRS-certified tax preparer, and I gave up using the website this year out of frustration.
Your final option is only available if you make $72,000 a year or less. In that case, you’re eligible for a free return on private tax software through the IRS Free File program. But careful: You might get a ton of spam from whatever company you choose trying to upsell you and get you to pay for fancier options. One investigation found that 14 million Americans were charged by companies for Free File returns that should have cost nothing.
The IRS also funds community tax organizations that can file returns for low-income people, but I can say from experience as a volunteer tax preparer that these groups are underfunded and overworked.
This is an unacceptable state of affairs. Americans should not have to choose between these obviously inadequate and half-baked free options for tax filing and paying a private company. Paying taxes is a legal requirement, and it should be possible to easily do it for free. And it just isn’t possible right now; it’s no wonder that over 91 percent of individual returns filed in 2019 were filed through a paid preparer or a private online service. The current system almost forces you to pay for the privilege of paying your taxes.”
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“For years, the government leaned on those two companies to provide free tax services to Americans in need. But the basic problem with relying on private sector companies that provide paid tax services to provide free ones is that they will always have an incentive to make the free service worse and to make the paid one more attractive. That’s been the story the past couple of decades.”
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” The IRS desperately needs to put together an easier-to-use, simpler way for people to file their taxes and access benefits free of charge. Accomplishing that, of course, is easier said than done. The IRS has been underfunded for decades and does not have sufficient in-house technical expertise to build a free file system on its own.”
“The IRS desperately needs to put together an easier-to-use, simpler way for people to file their taxes and access benefits free of charge. Accomplishing that, of course, is easier said than done. The IRS has been underfunded for decades and does not have sufficient in-house technical expertise to build a free file system on its own.”
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“The actual work of doing your taxes mostly involves rifling through various IRS forms you get in the mail. There are W-2s listing your wages, 1099s showing miscellaneous income like from one-off gigs, etc. The main advantage of TurboTax is that it can import these forms automatically and spare you this step.
But here’s the thing about the forms: The IRS gets them, too. When Vox Media sent me a W-2 telling me how much it paid me in 2020, it sent an identical one to the IRS. When my bank sent me a 1099 telling my wife and me how much interest we earned on our savings account in 2020, it also sent one to the IRS. If I’m not itemizing deductions (like 70 percent of taxpayers), the IRS has all the information it needs to calculate my taxes, send me a filled-out return, and let me either send it right back to the IRS if I’m comfortable with their version or else do my taxes by hand if I prefer.
This isn’t a purely hypothetical proposal. Countries like Denmark, Sweden, Estonia, Chile, and Spain already offer ”pre-populated returns” to their citizens. California experimented with a version called ReadyReturn before it was shut down under pressure from H&R Block and Intuit.”
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“Congress needs to authorize more funding for the IRS.”
“The first of the 2021 child tax credits hit parents’ bank accounts in July — but not for everyone. For many of the parents who need it most, accessing the money may be more of a struggle.
That’s because the IRS — an agency that knows little about the lowest-income Americans, who often don’t file taxes — has been tasked with distributing the money, up to $300 per month per child.
On July 15, the day payments first went out, the IRS said it sent $15 billion to 35 million families, 86 percent of which was sent via direct deposit. That suggests that the vast majority of initial recipients were from families who earned income and filed taxes, many of them middle- or lower-middle-income parents whose names, addresses, and bank accounts are on file from tax returns.
More than 10 million children live in poverty, according to 2019 data from the US Census. Of those, the People’s Policy Project estimates that about 7 million live in non-filing households. (Because these families are, by definition, somewhat difficult to track, estimates vary: The Census Bureau says that 36 percent of children in poverty are from families that did not file taxes in 2019, including 55 percent of children in families in deep poverty.)
Most of these families haven’t signed up to get government stimulus checks, either, effectively leaving thousands of dollars from the government on the table over the past year. The IRS gathered information on an additional 720,000 children in non-filing households where the parents registered to receive stimulus payments.
But that still leaves millions of children whose parents are eligible for the child tax credit (CTC) but who are not on track to receive it.”
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““The North Star should be making this as automatic as possible so families don’t have to take affirmative steps to get the support they need.””
“how do megabillionaires pay their megabills while opting for $1 salaries and hanging onto their stock? According to public documents and experts, the answer for some is borrowing money — lots of it.
For regular people, borrowing money is often something done out of necessity, say for a car or a home. But for the ultrawealthy, it can be a way to access billions without producing income, and thus, income tax.
The tax math provides a clear incentive for this. If you own a company and take a huge salary, you’ll pay 37% in income tax on the bulk of it. Sell stock and you’ll pay 20% in capital gains tax — and lose some control over your company. But take out a loan, and these days you’ll pay a single-digit interest rate and no tax; since loans must be paid back, the IRS doesn’t consider them income. Banks typically require collateral, but the wealthy have plenty of that.
The vast majority of the ultrawealthy’s loans do not appear in the tax records obtained by ProPublica since they are generally not disclosed to the IRS. But occasionally, the loans are disclosed in securities filings. In 2014, for example, Oracle revealed that its CEO, Ellison, had a credit line secured by about $10 billion of his shares.
Last year Tesla reported that Musk had pledged some 92 million shares, which were worth about $57.7 billion as of May 29, 2021, as collateral for personal loans.”
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“after decades of wealth accumulation, the estate tax is supposed to serve as a backstop, allowing authorities an opportunity to finally take a piece of giant fortunes before they pass to a new generation. But in reality, preparing for death is more like the last stage of tax avoidance for the ultrawealthy.”
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“Normally when someone sells an asset, even a minute before they die, they owe 20% capital gains tax. But at death, that changes. Any capital gains till that moment are not taxed. This allows the ultrarich and their heirs to avoid paying billions in taxes. The “step-up in basis” is widely recognized by experts across the political spectrum as a flaw in the code.
Then comes the estate tax, which, at 40%, is among the highest in the federal code. This tax is supposed to give the government one last chance to get a piece of all those unrealized gains and other assets the wealthiest Americans accumulate over their lifetimes.
It’s clear, though, from aggregate IRS data, tax research and what little trickles into the public arena about estate planning of the wealthy that they can readily escape turning over almost half of the value of their estates. Many of the richest create foundations for philanthropic giving, which provide large charitable tax deductions during their lifetimes and bypass the estate tax when they die.
Wealth managers offer clients a range of opaque and complicated trusts that allow the wealthiest Americans to give large sums to their heirs without paying estate taxes. The IRS data obtained by ProPublica gives some insight into the ultrawealthy’s estate planning, showing hundreds of these trusts.
The result is that large fortunes can pass largely intact from one generation to the next. Of the 25 richest people in America today, about a quarter are heirs”
“President Joe Biden wants to raise taxes on the wealthy to pay for some of his policy proposals. Part of the way he can go about that doesn’t entail touching the tax system at all — instead, he’d just have to put the IRS to work chasing down rich people to make sure they’re paying taxes they already owe.”
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“The most recent official tax gap estimate from the IRS, from 2011 to 2013, was that it amounted to $441 billion each year. That’s a big sum already, about 16 percent of total tax liability those years. But there’s reason to believe the gap is much higher — and that wealthy people are often to blame.”
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“The IRS’s total budget is down by some 50 percent since 1993 as a share of gross tax collections, and appropriations for the IRS — adjusted for inflation — have fallen by 20 percent since 2010, and after Republicans in Congress sought to curtail its budget. It’s lost thousands of enforcement staff. And its enforcement abilities directly affect revenue, not only by collecting unpaid taxes but also by influencing behavior. If people know that the IRS is going to come after them for skirting taxes, they’re less likely to try it. Rettig told the House Ways and Means Committee at a recent hearing that the number of examining revenue agents, who are tasked with handling complex cases, fell by 35 percent since 2010, and field collection revenue officers, who manage the harder collection cases, fell by 48 percent. The audit rate for millionaires fell from 8.4 percent in 2010 to 2.4 percent in 2019.”
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“Biden’s proposal to inject funding into the IRS could go a long way in reviving the agency. Because the IRS’s budget is generally determined year by year, it makes it hard to staff up or invest in technology for the long term. Agents with the experience and know-how to deal with complex audits can take years to train and replace.
“One of the key things in this proposal is not just the money, it’s that it’s a multi-year stream of funding that would allow them to plan it and spend it out over a multi-year period,” Hanlon said.”