“You can add the Internal Revenue Service to the ranks of federal agencies conceding that raining taxpayer money on all and sundry to offset the negative effects of pandemic-era closures didn’t go as well as intended. Not only was a program meant to offset the cost of paying workers during lockdowns and voluntary social-distancing prone to being gamed, but the “vast majority” of claims submitted to the program show evidence of being fraudulent.”
…
“In the course of a detailed review of the Employee Retention Credit, “the IRS identified between 10% and 20% of claims fall into what the agency has determined to be the highest-risk group, which show clear signs of being erroneous claims for the pandemic-era credit,” the IRS announced June 20. “In addition to this highest risk group, the IRS analysis also estimates between 60% and 70% of the claims show an unacceptable level of risk.”
The Employee Retention Credit was offered to businesses that were shut down by government COVID-19 orders in 2020 or the first three quarters of 2021, experienced a required decline in gross receipts during that period, or qualified as a recovery startup business at the end of 2021. But it was clear early on that scammers were taking advantage of giveaways of taxpayer money, either to claim it for themselves or to pose as middlemen helping unwitting business owners file claims.
In March of 2023, the tax agency warned of “blatant attempts by promoters to con ineligible people to claim the credit.” In September of that year, it stopped processing claims amidst growing evidence that vast numbers of applications were “improper,” as the IRS delicately puts it. In March 2024, the agency announced that its Voluntary Disclosure Program had recovered $1 billion (since raised to over $2 billion) in improper payouts from participants who got to keep 20 percent of the take.
Ultimately, only “between 10% and 20% of the ERC claims show a low risk” for fraud, even by generous federal standards for throwing other people’s money at problems largely of government creation.”
…
“”The total amount of fraud across all UI [unemployment insurance] programs (including the new emergency programs) during the COVID-19 pandemic was likely between $100 billion and $135 billion—or 11% to 15% of the total UI benefits paid out during the pandemic,” the Government Accountability Office warned last September.
Earlier, the Small Business Administration’s Inspector General found more than $200 billion stolen from the Economic Injury Disaster Loan (EIDL) program and Paycheck Protection Program (PPP). “This means at least 17 percent of all COVID-19 EIDL and PPP funds were disbursed to potentially fraudulent actors,” noted the report.
With between 70 percent and 90 percent of claims for the Employee Retention Credit identified as likely scams, either the IRS is a stand-out magnet for grifters or other agencies need to return to their own investigations with a somewhat more skeptical eye.”
“”if one ignores the fiction of auditing a millionaire through simply sending a letter through the mail, the odds that millionaires received a regular audit by a revenue agent (1.1%) was actually less than the audit rate of the targeted lowest income wage-earners whose audit rate was 1.27 percent!””
“The IRS didn’t audit the personal tax returns filed by former President Donald Trump during his first two years in office, despite an agency program that mandates scrutiny of every president’s tax information, a House committee said”
…
“the agency did not initiate an audit of any of the returns that Trump filed while in office until April 3, 2019. That was the same day that committee Chair Richard Neal (D-Mass.) first asked IRS Commissioner Chuck Rettig to provide Neal six years of Trump’s tax returns and any audits of those returns.
Only one such examination — that of the former president’s 2016 return — was flagged as a mandatory president audit. And three personal tax returns that Trump filed while in office for tax years 2017, 2018 and 2019 weren’t selected for scrutiny until after he left the White House.
The report reveals glaring problems for a program that is supposed to assure Americans that the president is abiding by the law, Joe Thorndike, a longtime tax historian, said.”
“The House GOP’s first bill out of the gate doesn’t address inflation or gas prices or immigration, but instead zeroes in on the Internal Revenue Service.
The bill set to be voted on Monday evening — barring a stalemate over approving the rules for the 118th Congress — would reverse much of the $80 billion in extra funding set aside for the agency by 2022’s Inflation Reduction Act.
While it has little chance of being enacted with Democrats in control of the Senate, the prominence of the issue shows just how much the IRS has become a target of Republicans even though experts say the funds in question would go toward more prosaic concerns like helping the agency chase down tax cheats and refresh its shockingly outdated technology.”
…
“The claim from McCarthy, which has been echoed by many Republicans, is that the influx of money will lead to a flood of 87,000 new IRS agents who will then harass everyday Americans. Some critics of the agency go even further and claim these new agents will be armed.
But fact-checkers have repeatedly debunked the claims, and the agency itself pushed back in a Yahoo Finance op-ed from then-IRS Commissioner Charles Rettig in August.
The viral claims are “absolutely false,” Rettig wrote at the time, adding his agency “is often perceived as an easy target for mischaracterizations,” but he promised the new money will not lead to increased audit scrutiny on households making under $400,000.
The plan is instead for much of the money to go toward wealthy tax cheats. IRS estimates of the so-called “tax gap” — the difference between what taxes are owed to the government and what is actually paid — is hundreds of billions of dollars a year.
Much of the $80 billion will be focused on taking a bite out of the gap, focusing on wealthy tax payers. The investment is projected to pay for itself and then bring in over $100 billion in increased tax revenue over the coming decade.
In addition, a May 2021 report by the Department of Treasury estimated that more IRS funding could lead to 86,852 new employees, but many of those new employees would not be agents. Many would work in other areas like information technology.
“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)”
…
“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.”
…
“Administration officials have reiterated that they will focus enforcement efforts on wealthy Americans and large corporations.”
…
“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.”
…
“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.”
…
“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.”
…
“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.”
…
“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.”
…
“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.”
…
“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.””
…
“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.”
…
“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).”
…
“The “tax gap” that the IRS seeks to close includes large amounts from the under-$400,000 club.”