How Enormous Boost in IRS Funding Is Warping Tax Agency’s Priorities
The IRS released its strategic operating plan on April 6, describing its intentions for spending the nearly $80 billion of supplemental funding it’s receiving under the so-called Inflation Reduction Act.
The report was 48 days late beyond the Feb. 17 deadline the IRS was given and only included funding and staffing details for two of the required nine years.
(For those of you who haven’t yet filed your taxes — which are due on Tuesday — I don’t recommend following the IRS’ lead and submitting an incomplete return 48 days late.)
The IRS report focuses heavily on the agency’s strategy for the fiscal years 2023 and 2024, which run for another 18 months. The report is very light on the details for fiscal years 2025 through 2031.
Perhaps uncoincidentally, by the end of fiscal 2024, the IRS plans to burn through most of its $3.2 billion budget for taxpayer services — things like answering the phone and streamlining the filing process.
In contrast, the IRS expects to spend less than 4% of its $45.6 billion supplemental budget for audits and other enforcement by the end of fiscal 2024. That will leave a nearly $44 billion supplemental enforcement budget to be spent in fiscal 2025 through 2031.
Even though funding for taxpayer services makes up only 4% of the supplemental budget, the IRS report is laser-focused on highlighting that small component of the plan.
If the IRS were a real estate agent, it would have just spent most of the home tour showing off the nice walk-in closet after rushing us through the rest of the house in the dark.
Like a real estate agent trying to sell a house on a crumbling foundation, IRS officials are keenly aware of the public’s distaste for more audits, asset monitoring, litigation, and other parts of enforcement. They remember the pushback that arose in 2022 when Congress passed the bill that gave the agency roughly $80 billion of extra funding, mostly allocated to enforcement.
They also know that House Republicans voted to rescind the IRS enforcement funding while leaving the taxpayer services funding untouched. (The IRS funding repeal did not pass the Senate.)
With a closely divided Congress and high levels of public distrust, the IRS knows that it needs to improve its public image if it hopes to keep its massive boost in funding over the next two or three years.
This self-preservation dynamic at the IRS could be both good and bad.
On the one hand, it’s good if it causes the IRS to feel accountable to the people it serves — even if it is only for a fleeting moment, when funding is at stake.
On the other hand, a large and precarious boost in funding can cause an agency to be more attuned to political dynamics instead of simply carrying out its function as dictated by law. It can cause an agency to be less transparent, for example, about things that would put it in a bad light.
That’s precisely what seems to be happening at the IRS.
The IRS and the Treasury Department would prefer to give the public as little information as possible about the coming wave of audits. They’ve also been parroting false claims pushed by the White House.
One of the supposed tenets of the Biden administration is that nobody making less than $400,000 will be negatively affected by any of its fiscal policies, clearly an absurd contention as everyday Americans struggling in the Biden economy can attest.
Nonetheless, the previous and current IRS commissioners have dutifully repeated the party line that small businesses and individuals making less than $400,000 won’t be affected by the increase in audits.
But given the sheer volume of additional funding and staff that the IRS will have to dedicate to enforcement, there are only two ways the IRS could avoid directly increasing audit rates on Americans making less than $400,000.
It could either dramatically reduce the typical auditor’s workload — In which case: Why exactly are we paying them? — or it could torpedo the U.S. economy by bogging down virtually every business and high-income earner in a perpetual state of costly and time-consuming audits.
And since the IRS plans to spend almost all its enforcement budget in seven years instead of nine, the agency’s annual spending on enforcement during that seven-year period will have to be that much higher.
That means that even more middle-class Americans will be caught up in the IRS dragnet.
Given the past and present politicization of the IRS and the Treasury Department, it’s also at least possible that the upcoming 2024 elections could be motivating IRS leadership to wait until 2025 to ramp up enforcement. If conservatives control the White House and Congress in 2025, they will almost certainly pare back much of the extra IRS funding.
By front-loading most of the taxpayer services spending to 2023 and 2024 and holding back the onslaught of new auditors until 2025, the IRS — whether deliberately or not — is giving political cover to President Joe Biden and other elected officials who supported the IRS funding boost, at least until after the elections.
IRS funding may also be a sticking point in debt-ceiling negotiations that will pick up over the next couple of months. As part of those discussions, the conservative House Freedom Caucus has proposed cutting the additional IRS funding, along with other spending reductions.
Indeed, the IRS has failed to be transparent about who they will audit and what that will look like. Americans have ample reasons to be distrustful of how the IRS will use the influx of cash, and Congress should use the power of the purse to stop the coming wave of audits before it hits.
This article was originally published by The Daily Signal.