Huge Revenue Loss From Decline in Audits
A government agency reported that a decline in audits of wealthy taxpayers has resulted in potential loss of nearly $2 billion.
IRS Commissioner Charles Rettig told lawmakers the actual tax gap could approach or exceed $1 trillion per year. He said that when wealthy taxpayers evade their obligations, the costs are borne by taxpayers who follow the law.
The IRS has had a decline in staffing and a decline in resources. Charles Rettig said that the IRS has lost 17,000 enforcement personnel over between 2013 and 2018. The number of audits of high-income returns that closed in fiscal 2019 was only 29,610 compared to 47,024 in fiscal 2015.
The IRS defines high-income taxpayers as people whose positive income was at least $200,000.
A report by the Treasury Inspector General for Tax Administration (TIGTA) noted that a program that focused on wealthy taxpayers was discontinued in 2017. The report noted that when high-income taxpayers were audited it averaged more dollars per hour than any other audit strategy.
U.S. Treasury Secretary Janet Yellen has said that if the IRS were funded appropriately and able to crack down on tax cheats, the government would be able to collect more revenue without raising taxes.
“The tax gap is huge, and I think we would have a fairer tax system and collect more tax revenue without the need to raise rates if we resourced the IRS properly to be able to address this issue,” Yellen stated during testimony before the Senate.
“Every dollar spent on IRS enforcement reduces at least three or four dollars to the federal budget essentially, but it is not something that gets scored. When we look at budget increases, there is a little bit of controversy here. We had the president and the White House come out and say, the IRS needs 80 billion, and we are prepared to fund them $80 billion over the next decade. We would use that to enhance their technology and to do some significant hiring and training at all levels. What’s happening more recently, though, is that Congress started looking at it and saying maybe we should give them $40 billion, not $80 billion.” Said Patti Burquest, principal, and Washington national tax leader at RSM US.
The IRS has requested an $80 billion investment over the course of a decade, which would allow the IRS to increase its enforcement and crack down on tax cheats.
The senate is negotiating a bipartisan deal that includes $40 billion to boost audits with a goal of raising $100 billion more in tax collections.
David Zubler is a tax accountant and Enrolled Agent representing clients before the IRS with over 25 years of tax experience. He is the author of four tax books and is the founder and president of Your Tax Care. The company provides business and tax education to the public at its website, YourTaxCare.com. David can also be contacted by email at firstname.lastname@example.org