WASHINGTON — Look out, warn the Republicans. The Internal Revenue Service is about to unleash an army of agents eager to audit you and cost you a lot of money and aggravation.
But there is no such army about to mobilize. And it’s unlikely to cost most people extra money.
Here’s what to expect:
There will be greater IRS enforcement of tax laws, and more personnel, but the buildup will take years and it’s not clear how many employees will be involved.
The new Democratic-authored tax law “does not contain any detailed instructions as to how the money would be used by enforcement, taxpayer services, etc. It certainly does not say how many employees should be hired, or what those employees would do,” said Janet Holtzblatt, senior fellow at the nonpartisan Tax Policy Center.
Conservatives say otherwise.
“They’re adding 87,000 new IRS agents — larger than the entire population of Flint, Michigan — to collect $200 billion of new taxes — mostly from middle class families and shopkeepers who don’t have the resources to contest expensive audits,” said Rep. Tom McClIntock, R-Calif.
Democrats want to spend “$80 billion of your money to hire an army of 87,000 new IRS agents,” charged House Republican Leader Kevin McCarthy.
The furor stems from the Inflation Reduction Act that President Joe Biden signed into law Aug. 16. It included $80 billion over the next 10 years to help the IRS, which has been struggling not only to enforce tax laws but provide efficient customer service.
IRS officials insist there’s nothing for law-abiding taxpayers to worry about. “These resources are absolutely not about increasing audit scrutiny on small business or middle-income Americans. The investment of these important resources is designed to support honest, compliant taxpayers,” IRS Commissioner Chuck Rettig said Thursday in an op-ed for Yahoo! Money.
Is McClintock correct about the IRS?
Here are some of the key questions Republicans are raising, and some answers:
▪ Will IRS hire 87,000 new agents to enforce tax laws?
Not right away, and in the future, it’s not clear just how many new agents would be hired or used to help enforce laws. Treasury Secretary Janet Yellen has told the IRS to report in six months how it will use its funds.
As evidence supporting the 87,000 figure, McClintock’s office pointed to Treasury’s “American Family Plan Tax Compliance Agenda,” a 2021 blueprint for modernizing the IRS.
On page 16, it seeks $80 billion that would be used for “hiring new specialized enforcement staff, modernizing antiquated information technology, and investing in meaningful taxpayer service.” The report says that by 2031, that would mean 86,582 positions.
Holtzblatt noted that “the report does not contain details to explain how they derived their estimate that they would hire nearly 87,000 new employees by the end of the decade.” IRS media officials would not comment.
Based on what’s in the report, Holtzblatt said, “I think it’s very fair to say that they did not intend to hire 87,000 agents. But we don’t know how many of each type of employee they would hire. Or, for that matter, whether they actually could find that many new employees to hire.”
Democrats protest that any claim of 87,000 is wildly exaggerated.
The figure is “total hires, not new hires, and includes enforcement, customer service, and technology staff,” said Ashley Schapitl, spokeswoman for the tax-writing Senate Finance Committee, which is controlled by Democrats.
She explained that the IRS has an older workforce than nearly every other federal agency, and expects to lose thousands of employees over the next decade. “A large part of the 87,000,” she said, “is keeping up with attrition.”
▪ Will the IRS collect more than $200 billion in new taxes?
The nonpartisan Congressional Budget Office had projected earlier this month that the IRS initiatives would result in a $203.7 billion increase in revenue over 10 years, so McClintock was correct when he made his statement August 12.
Thursday, CBO revised its estimate to $180 billion. It said that changes in the law since its first report would slow the hiring process, causing some delay in stepping up enforcement.
The law, CBO said, would mean the IRS expects to “hire new personnel more slowly and could make hiring experienced candidates more difficult.”
▪ Will the additional revenue come largely from middle class taxpayers and shopkeepers?
IRS is adamant that those people and businesses would not bear a disproportionate share of the burden.
CBO said Thursday that audits of those earning less than $400,000 would “constitute a small fraction of the total increase collected from all taxpayers resulting from the increased funding for the IRS.
“That fraction will be small because,CBO expects, the IRS will follow the Secretary’s directive, and enforcement resources will focus on what the Secretary terms high-end noncompliance.”
In an Aug. 4 memo to Congress, Rettig said flatly “audit rates will not rise relative to recent years for households making under $400,000.”
On Aug. 10, as Republican criticism intensified, Yellen wrote Rettig “small business or households earning $400,000 per year or less will not see an increase in the chances that they are audited.”
Rettig did not clarify what “recent years” meant, and that could make a difference in the number of people who are audited.
McClintock’s office noted that that language “could very well indicate 2010 levels,” where audits were historically high for the middle class.
The nonpartisan Government Accountability Office reported in May that on average, individual tax returns were audited over three times more often for tax year 2010 — about 0.9% —than for tax year 2019 — 0.25%. IRS attributed the drop to staff attrition and “major disruptions,” notably the COVID pandemic.
To McClintock, the data suggest more audits of middle class and small business taxpayers are likely.
“The share may not increase, but the total number of the audits on the lower- and middle-income earners will,” said Jennifer Cressy, McClintock spokeswoman.
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