On Thursday, the Internal Revenue Service revealed a proposal to turn itself into a “digital first” tax collector that would concentrate on customer service and clamping down on affluent tax evaders. The plan has an estimated cost of $80 billion. With this step, the foundation is being laid for an ambitious 10-year makeover of one of the federal government’s branches that is subject to the greatest scrutiny.
The project is an essential component of President Joe Biden’s economic strategy, which seeks to lower the nation’s $7 trillion in uncollected tax revenue and use the cash to tackle climate change, limit the cost of prescription drugs, and pay for other measures that are important to Democrats.
The idea is also at the centre of the White House’s efforts to achieve its objective of making the tax administration more equitable. According to the study, more than half of the extra money will be allocated to programmes that will ensure wealthy investors and major organisations will not be able to evade paying the taxes that they are responsible for paying.
The Inflation Reduction Act, comprehensive climate and energy legislation that Democrats got through last year, contained the $80 billion injection of funding, making it the greatest single infusion of funds in the history of the agency.
According to the administration of President Joe Biden, the investment will result in a reduction of the deficit of hundreds of billions of dollars. However, attempts to strengthen the Internal Revenue Service have been met with fierce hostility from Republicans, who have long maintained that the agency inappropriately targets them.
Treasury Secretary Janet L. Yellen, whose department is in charge of overseeing the tax agency, was the one who asked for the report that was issued on Thursday.
Even though the population of the United States is now higher and the tax system is more complicated, the Internal Revenue Service (IRS) only has around 80,000 full-time workers. This is nearly a 20 percent decrease from the number of staff it had in 2010. As a result of Republican efforts throughout the years to reduce the agency’s budget and, in some instances, advocate for its complete elimination, the agency’s resources have likewise decreased over time. The burden on the government’s finances has resulted in a backlog of tax returns, delayed refunds, extended wait times for taxpayers who phone the agency with inquiries, and a decline in the percentage of returns subject to scrutiny.
The Internal Revenue support (IRS) has been rushing to finish the processing of older tax returns, the majority of which were submitted on paper rather than electronically, and has been ramping up its recruiting efforts in recent months in order to boost its capacity for providing customer support.
The plan that was presented on Thursday contains specifics of the Internal Revenue Service’s goals to transform itself into a “digital first” organisation that offers “world class” service to taxpayers. This involves the replacement of outdated technology as well as the introduction of new technologies that will provide taxpayers with better access to their financial information, quicker contact with the Internal Revenue Service, and new methods to fix problems while they are filing their tax returns.
The enforcement of the law will be subject to the most profound and politically fraught changes. The Internal Revenue Service (IRS) intends to strengthen its teams of revenue agents and tax lawyers so that it does not get overwhelmed while inspecting complex business partnerships or companies. Additionally, the IRS expects to deploy additional data analytics and machine-learning technologies in order to improve its ability to identify tax evasion.
However, Janet Holtzblatt, a senior fellow at the Urban-Brookings Tax Policy Center, said that it would be difficult for the Internal Revenue Service (IRS) to identify whether or not individuals reporting an income of less than $400,000 were doing so in a lawful manner, given that the IRS would not be able to audit some of them immediately. She said that in the end, the agency would have to decide on an appropriate audit rate for persons whose income falls below that threshold.
The Internal Revenue Service is now conducting a study costing $15 million to assess whether or not it is possible for it to establish its own system that would enable more taxpayers to submit their federal forms online for free. The lobbying organisations that represent the tax preparation business have voiced their opposition to this concept.
The national taxpayer advocate, Erin M. Collins, said on Thursday in a blog post that the strategy had the ability to alter tax administration but that a disproportionate amount of money being put in enforcement.
According to the findings of the analysis, a portion of the $80 billion may be required to keep the agency’s core functions running smoothly in the event that its yearly budget is reduced in the years to come. This would put the Internal Revenue Service in the position of having to cut down its reform.
Republicans in the House of Representatives voted in January to reduce the allocation, and Republican response to the report released on Thursday signalled that the political battle over the Internal Revenue Service would only get more intense.
Nikki Haley, the former governor of South Carolina and a contender for the nomination of the Republican Party for president, asked on Twitter whether anybody believes the Internal Revenue Service won’t go after middle America.