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Sen. Warren Pushes for IRS Funding Boost in Spending Plan

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What You Need to Know

  • IRS' FY 2021 budget — factoring in inflation and mandatory pay raises — is really a 22% reduction from 2010, Rettig said.
  • An increase in funding is needed so wealthy tax cheats and big corporations pay their fair share, Warren said.
  • The budget reconciliation package must include significant, multi-year funding for the IRS, Warren said.

Sen. Elizabeth Warren, D-Mass., is pushing for increased funding for the Internal Revenue Service in the budget reconciliation package so the agency can chase down wealthy tax cheats.

IRS Commissioner Charles Rettig told Warren and other lawmakers that the agency’s fiscal 2021 budget — factoring in inflation and mandatory pay raises — “is really $2.7 billion less than in FY 2010 — a 22% reduction,” which will impede its ability to go after tax evaders.

“Because of this decrease, the IRS expects to support around 74,200 FTEs [full time equivalents] this fiscal year — a staffing level nearly identical to the IRS’s staffing level in 1973,” Rettig told  Warren in a recent letter.

“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,” Rettig said. “Adding substantial multi-year mandatory funding, however, provides an opportunity to greatly improve federal tax administration for all Americans.”

Rettig’s letter was in response to an Aug. 10 inquiry by Warren as well as Sens. Bernie Sanders, I-Vt., and Sheldon Whitehouse, D-R.I., about revenue lost from tax avoidance by the wealthy and steps Congress must take to help the IRS enforce the tax code.

Warren said in a statement that 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.”

Congressional leadership, she said, “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.”

Reduced full-time staff, Rettig said, “has significantly diminished” the IRS’ ability to:

  • deliver meaningful customer service;
  • maintain sufficient audit coverage of entities and individuals contributing the most to the tax gap;
  • collect taxes taxpayers acknowledge they owe but have not paid;
  • reduce the tax gap through a coordinated effort of both meaningful guidance and enforcement;
  • fund the government; and
  • modernize our Information Technology (IT) systems and facilities.

As proposed in the President Joe Biden’s American Families Plan, “enhanced tax gap efforts will generate $700 billion in additional tax collections over the first ten years, and around $1.6 trillion over the course of the second decade,” Rettig said.

The gross tax gap, he explained, “is the difference between true tax liability for a given tax year and the amount that is paid on time. It is composed of the nonfiling gap, the underreporting gap, and the underpayment (or remittance) gap.”

Said Rettig: “With additional mandatory funding, we will better address the tax gap on all fronts—nonfiling, underreporting, and underpayment.”

First, Rettig reiterated that to address the underreporting gap, the IRS will hire specialized examiners, significantly increasing audit activity on high-income individual taxpayers, partnerships and large corporations.

“As explained in the American Families Plan, the Administration projects that over 10 years, we will collect an additional $269 billion in direct enforcement revenue and will protect an additional $46 billion by preventing fraudulent refunds,” Rettig said.

The Department of the Treasury’s Office of Tax Analysis estimated that the additional information reporting for financial inflows and outflows could bring in an additional $460 billion over 10 years, Rettig noted.

The Joint Committee on Taxation estimated the cryptocurrency reporting provision could bring in an additional $28 billion over 10 years, he said.