NEW: IRS Commissioner Letter Affirms Call for Substantially More Mandatory IRS Funding - and Bank Data - to Enforce Tax Code
Washington, DC - United States Senators Elizabeth Warren (D-Mass.), Sheldon Whitehouse (D-R.I.), and Bernie Sanders (I-Vt.) today released a letter from Internal Revenue Service Commissioner Charles P. Rettig in response to their August 10, 2021 inquiries about revenue lost from tax avoidance by the wealthy and steps Congress must take to help the IRS enforce the tax code and deliver improved taxpayer services to all Americans.
In the response to the Senators’ questions about inadequate funding for tax enforcement, Commissioner Rettig wrote:
“Maintaining a flat budget will continue to deprive Americans of both the nature and quality of services they deserve, producing a continuing decline in fairness and service. Adding substantial multi-year mandatory funding, however, provides an opportunity to greatly improve federal tax administration for all Americans.”
Senator Warren made the following statement in response to Commissioner Rettig’s letter:
“This new information from the IRS makes clear that unless we significantly increase IRS funding, wealthy tax cheats and big corporations will be able to continue to avoid paying their fair share to the tune of billions of dollars per year while everyone else suffers. This is why Congressional leadership must include in the budget reconciliation package significant, multi-year funding for the IRS to boost enforcement and bring in billions more in revenue each year. The Commissioner’s letter also makes it clear we need new reporting requirements in order to improve tax compliance among the wealthiest Americans, and to reduce the burden for honest taxpayers,” said Senator Warren.
Senator Whitehouse made the following statement in response to Commissioner Rettig’s letter:
"The ultra-rich and big corporations exploit our needlessly complex tax system to avoid paying their fair share in taxes, while cuts to enforcement budgets make it virtually impossible to catch them if they cheat. As this response shows, we ought to give tax authorities the resources to police abuses of offshore tax havens and other infractions. Otherwise, we stick law-abiding Americans with the bill," said Senator Whitehouse.
Other Top Takeaways from the IRS Response Letter:
- Consistent, multi-year funding would restore audits of the wealthiest taxpayers and large corporations. The IRS told the Senators that increased funding would allow the IRS to increase badly needed audits of high-income taxpayers, pass-through entities, and wealthy individuals with offshore accounts.
- The response noted that increased enforcement could assist in increasing voluntary compliance, with a 1% improvement increasing annual revenue by about $30 billion a year.
- The response warned that failing to make necessary investments could harm compliance and revenue: “taxpayers may become emboldened to take riskier tax positions.”
- Without additional resources, IRS staffing will continue to decline, imperiling the agency’s ability to meet its mission. The Commissioner wrote, “reduced IRS staffing affects enforcement through declining rates of audit coverage, collection, and customer service.” For decades, IRS staffing was relatively consistent with GDP growth, but IRS reports that since 1995, “real GDP has increased by 76%, whereas IRS staffing decreased by 32%.”
- Multi-year, consistent funding is necessary to restore customer service. The Commissioner wrote, “We simply have not had the resources to be as effective as we could be.” IRS reports the need for customer service has dramatically increased since 2020, but current technology is not sufficient to adequately meet customer service needs.
- Increased funding is necessary to update outdated agency ITm facilitate enforcement and taxpayer services, and protect against cyberattacks. The IRS Commissioner told the Senators that “IRS’s technology needs are severely underfunded, a problem that has worsened over time as the demand for IT services grew and funding did not keep pace.” The Commissioner wrote that funding for modernization could “move the IRS toward near real-time tax processing” and enable the IRS to “deploy new analytical techniques and meet imminent threats to the security of the tax system, like cyberattacks.”
- Tougher reporting requirements will improve voluntary compliance and “reduce the burden on compliant taxpayers.” The Commissioner shared that research from the IRS “shows that compliance is as low as 45 percent when income is subject to little or no information reporting or tax withholding” but that “when there is substantial information reporting, compliance rises above 95 percent.”
IRS also stated that new information reporting requirements will assist compliant taxpayers by “provid(ing) them information relevant to completing their return, which reduces their filing and compliance costs” and making the IRS “less likely to engage in unnecessary or erroneous interactions with compliant taxpayers.”
Senator Warren has repeatedly called for the budget reconciliation package to include a significant investment in new, mandatory funding for the IRS, which she also introduced through legislation in the Restoring the IRS Act. That bill would provide $31.5 billion in mandatory annual funding for the IRS, which would allow the IRS to fairly enforce the tax code, modernize its IT systems, and improve taxpayer services.
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