A group of 25 Democrats in the House wrote to congressional leaders asking them to provide $12.1 billion in funding for the Internal Revenue Service, including $5.2 billion for enforcement, with an eye toward cracking down on high-income tax cheats.
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“The strength of IRS enforcement activities must be a priority for Congress, especially considering the additional measures Congress enacted under the CARES Act to lessen the financial burden of the COVID-19 pandemic,” they wrote in a letter last week.
They pointed to an
IRS commissioner Charles Rettig strenuously denied those accusations during a subcommittee hearing this month, pointing to information from the annual IRS Data Book, noting that the audit rate for EITC claimants is 1.1 percent, while for taxpayers earning over $10 million it’s 8.16 percent.
“There is no focus on lower-income taxpayers and there’s definitely no focus from the Internal Revenue Service within any of our systems on individuals who make up any of these taxpayer groups,” said Rettig. “But to the extent that people indicate the EITC is focused on lower-income individuals, whoever is in that population is in the audit selection process. We don’t look to any characteristics other than what is or should be in a return, and things like that in audit selection. But annually in the last one, fiscal ’19, in the EITC world, there were about 25 million people claiming $63 billion of the EITCs, and there was a 25 percent improper payment rate, which means that the Internal Revenue Service paid for fiscal ’19 $17.4 billion to that group that we were unable to verify that they were entitled to it. I agree with every member on this committee that this is important money for important people. It’s a subsidy that, it’s my personal belief tat by and large, is getting to the right people, but it’s a subsidy that is characterized in the Internal Revenue Code and given a responsibility to the tax administrator on some things that are very complex, the Code itself for the EITC needs to be addressed by Congress at the appropriate time.”
The Congressional Budget Office has found that increasing the IRS’s budget to investigate high-income Americans would more than pay for itself, the lawmakers noted. Increasing the examinations and collections budget by $20 billion over a decade’s time would increase revenues by $61 billion, and if the budget is raised by $40 billion over 10 years it would increase revenues by $103 billion.
They pointed to $2.3 billion in tax fraud in fiscal year 2020 identified by the IRS’s Criminal Investigation division, an increase of $500 million, or nearly 28 percent, from FY 2019. “According to the recent FY 2020 report, much of the group’s work in recent months has focused on fraud connected to economic relief lawmakers passed this year in response to the coronavirus pandemic, including cases of fraudulent claims for economic impact payments, Paycheck Protection Program loans and refundable payroll tax credits,” they wrote.
They contend that IRS enforcement resources should not be targeted at lower-income taxpayers, whose earnings are usually simpler to track from W-2 and 1099 forms and compare against the 1040 forms they file, as opposed to the more complex returns of wealthier taxpayers.
“The IRS should not continue an enforcement program focused on low-income taxpayers, singling out Earned Income Tax Credit (EITC) recipients, just because it is cheaper and easier,” the lawmakers added. “We urge you to preserve the $5.2 billion level of funding from the House-passed FSGG appropriations bill in order to ensure IRS can effectively collect taxes, including those owed by the top 1 percent of taxpayers.”
