After much anticipation, the Internal Revenue Service has unveiled its plan to revamp its operations. The IRS has published its Strategic Operating Plan for the next ten years, outlining its strategy to leverage the $80 billion funding boost from the Inflation Reduction Act, as proposed by the Democrats. However, the success of the IRS’ plan largely hinges on whether it continues to receive steady funding from Congress.
The new funding provided by the Inflation Reduction Act will be allocated by the IRS across five key areas, as detailed in its plan. These areas include enhancing customer service, digitizing tax returns, and recruiting a more capable workforce to better cater to taxpayers’ requirements. According to Treasury Secretary Janet Yellen’s statement, the plan signifies the IRS’s commitment to offer top-notch service, modernize outdated technology, and narrow the tax gap by enforcing equitable taxation rules for high-income earners and working/middle-class families.
The IRS intends to employ sufficient accountants and attorneys to enforce tax compliance on wealthy individuals who have not fulfilled their tax obligations
The aspect of targeting high-income individuals is a crucial element of the IRS’s strategy. As per the press release, the agency’s inadequate resources have caused a significant decline in audits of wealthy individuals and large corporations over the past decade, while tax evasion in the top 1% has surged to $160 billion annually.
As stated in the press release, auditing high-net-worth individuals and their associated entities takes up to 50 times longer than conducting simple audits, with an average of 250 hours as opposed to five hours. The review of corporate entities takes hundreds of hours spanning over two to four years. The agency requires highly skilled individuals to carry out these intricate and time-consuming tasks.
IRS Invests $41.7B to Target Wealthy Tax Evaders: Prioritizing Skilled Professionals & Advanced Tech for Fair Compliance
To address this issue, $41.7 billion of the $80 billion investment has been allocated for strengthening enforcement measures against high-income individuals and large corporations. The accompanying letter by IRS Commissioner Daniel Werfel stated that the agency will prioritize its enforcement resources towards employing skilled accountants, attorneys, and data scientists to pursue complex partnerships, high-income and high-wealth individuals, and large corporations who have evaded paying their taxes.
As outlined in the plan, households and businesses with an income below $400,000 will not experience an upsurge in audit rates compared to previous levels. However, the IRS intends to enhance its utilization of data analytics and advanced technology to detect non-compliance with the tax code among individuals and businesses.
Werfel pointed out that the IRS workforce has contracted by 20%, to approximately 80,000 employees, since 2010, despite a rise in the US population. As per the Treasury Department’s initial projections, the funding boost under the Biden administration was expected to expand the agency’s workforce to 87,000 employees. However, the plan does not offer a specific estimate in this regard.