Cheers from Democrats and lamentations from Republicans are ringing out over the highly anticipated strategic operating plan from the IRS.
The plan is the tax collection agency’s roadmap for the $80 billion funding boost it received from Congress in Democrats’ Inflation Reduction Act (IRA).
Inside the plan: Here’s how the IRS will spend its $80 billion funding boost
The 10-year plan aims to increase taxpayer service and boost audit rates on wealthy individuals and businesses while updating the IRS’s technology and data analytics capabilities. The agency has seen long-term declines in staffing levels, funding levels and in the number of audits it performs.
Democrats lauded the IRS plan as a way to level the economic playing field, which they see as tilted in favor of affluent Americans who can shirk their tax liability through loopholes and complexities built into the tax code.
“The Inflation Reduction Act is a transformational investment in regaining taxpayers’ trust, modernizing the IRS to provide world-class customer service, and eliminating the two-tiered tax system that has allowed the wealthy and well-connected to play by one set of rules and everyone else by another. As laid out today, it’s already hard at work,” Rep. Richard Neal (Mass.), the top Democrat on the chief tax-writing Ways and Means Committee, said in a statement.
Republicans have raged against the funding, saying that the increased tax enforcement will be directed against middle class Americans as opposed to the wealthy people and business owners the Biden administration says it’s targeting.
Ways and Means Committee member Adrian Smith (R-Neb.), who put forward a proposal to rescind the $80 billion for the IRS at the beginning of this year when Republicans took control of the House, called the operating plan “too little, too late.”
“The IRS’s own Taxpayer Advocate has said the way these funds are allocated will not improve customer service because the funding fails ‘to strike an appropriate balance between serving taxpayers and enforcing the law,’” he wrote in a statement on Thursday.
Sen. Steve Daines (R-Mont.), a member of the Senate Finance Committee, echoed that sentiment in a statement.
“The Biden administration has once again shown where their priorities lie—expanding the federal government and exerting more control over the lives of hardworking Montanans,” Daines said.
“It’s clear that this is big government at its worst and I hope to see all of my colleagues oppose this.”
The office within the IRS that tries to influence policy on behalf of households and individual taxpayers lauded the action plan, saying it “[shares] the long-term vision.”
“Although the [plan] offers the promise of many positive changes in the coming years, I urge the IRS to put appropriate focus on getting its inventories under control now and not lose sight of its core mission,” taxpayer advocate Erin Collins wrote in a blog post on Thursday.
“With the long-term funding the IRS has received and prudent management, change is possible. There is light at the end of the tunnel,” she wrote.
Higher audit rates spark divides
One of the main focuses of the plan will be to audit richer Americans and pass-through businesses where much of the uncollected tax money due to the government is located. The IRS will “focus expanded enforcement on taxpayers with complex tax filings and high-dollar noncompliance,” the plan says.
IRS data for the 2010s shows that people making between $5 million and $10 million a year actually had a lower chance of being audited than people making less than $25,000 a year.
“The reality is, hardworking Americans who pay taxes out of every paycheck understand that they’re getting ripped off by wealthy tax cheats who are getting away with breaking the law. They want it to stop, and that’s what Democrats are working to accomplish,” Senate Finance Committee chair Ron Wyden (D-Ore.) said in a statement on Thursday.
“This plan makes it clear that no taxpayer making less than $400,000 would be targeted for additional audits,” he said.
IRS previews plan for online tax filing system
The plan also includes a few details on a report that’s due out in May about a free online tax filing system that was mandated in the Inflation Reduction Act.
“We will explore making it easier for many taxpayers to file returns for free with a question- based electronic service to prepare and file tax returns directly with the IRS. This service could lower barriers to claiming certain incentives,” the IRS said.
Here’s what a free IRS e-filing tax return system could look like
The agency said it is looking into the tax systems of other countries to help inform this report.
“Many other tax authorities have rolled out the ability to file taxes directly for free as part of their digital transformations. The IRA requires the IRS to study the design of an IRS-run direct file service,” the plan said.
“As the IRS examines the cost and feasibility of building a direct file option, as required by the IRA, it will also study taxpayer preferences for products. The results of the study will inform if and how the IRS should design such a service,” the IRS added.