The Inflation Reduction Act gives the IRS $80 billion in new funding to upgrade and, among other things, to hire 87,000 new agents. The country desperately needs that investment to compensate for massive budget cuts to the IRS over the past decade, to update antiquated technology, and to enable the agency to go after über-wealthy billionaires and transnational corporations who have successfully evaded or outright refused to pay taxes for years.
Republicans in Congress falsely say that the new IRS agents will be armed and will go after low and middle-income taxpayers. These completely false claims have sparked a wave of rightwing threats of violence. A Republican candidate for the Florida legislature called for Floridians to “shoot FBI, IRS, ATF and all other feds on sight! Let freedom ring!”
The scare stories are totally false. In actual fact, the new funding follows a decade of defunding. The IRS enforcement budget was cut by more than 25 percent from 2012 to 2020, and the agency lost almost 6,000 agents.[1] With less money and fewer agents, the IRS conducted fewer audits overall, and collected far less money, only $11 billion in 2019, compared to $28 billion in 2010.
“Overall, 2019 brought the lowest audit rate in generations. ProPublica searched back to the 1950s and could not find a lower audit rate of individual returns. The story is similar for corporate audits. The largest corporations, those with assets over $20 billion, used to be audited every year. Last year, only about half were audited.”[2]
Back in 2009, the IRS created the Global Special Wealth Group. Its mission: investigate extremely wealthy individuals and corporations, who pay far less than their share of taxes and, as a group, cheat like crazy. They are also hard to audit, because they have squads of lawyers who stall and sue and obstruct, generally outgunning the IRS.
The new wealth squad was supposed to change that, with 242 specialized auditors, well-trained and operating in teams. That didn’t happen. The billionaires hit back, mounting a lobbying campaign against not only Global Special Wealth Group, but the IRS as a whole. The special group never got anywhere near the planned 242 auditors. By 2014, the special group had 96 auditors, and by 2018, only 58 remained.[3]
Without resources to match mega-cheats, IRS audits focused instead on easier, less wealthy targets. Auditing poor people is easier, and a lot cheaper than auditing the top one percent.[4]
“Audits of the wealthiest Americans have collapsed 52 percent since 2011, falling more substantially than audits of the middle class and the poor. Almost half of audits of the wealthy were of taxpayers making $200,000 to $399,000. Those audits brought in $605 per audit hour worked. Exams of those making over $5 million, by contrast, brought in more than $4,500 an hour.”[5]
In 2012, the Global Special Wealth Group went after Greg Schaeffler, a multi-billionaire whose businesses are international. The IRS concluded that he owed $1.2 billion in taxes on unreported income. This Pro Publica article details how Schaeffler ultimately managed to get by with paying tens of millions to settle the case:
“The Schaeffler case offers a rare window into just how challenging it is to take on the ultrawealthy. For starters, they can devote seemingly limitless resources to hiring the best legal and accounting talent. Such taxpayers tend not to steamroll tax laws; they employ complex, highly refined strategies that seek to stretch the tax code to their advantage. It can take years for IRS investigators just to understand a transaction and deem it to be a violation.
“Once that happens, the IRS team has to contend with battalions of high-priced lawyers and accountants that often outnumber and outgun even the agency’s elite SWAT team.”[6]
The Republican budget-slashing for the IRS over the past decade also gutted its technological capacity. Catherine Rampell, Washington Post writer, recently toured IRS offices in Austin and found an “embarrassingly outdated, paper-based system, which leaves stacks and stacks of returns cluttering shelves, hallways and even the cafeteria.”
“Taxpayers are trapped in this time warp because Congress has systemically underinvested in the IRS. Its funding was cut for most of the past decade, despite the agency receiving evermore responsibilities: stimulus checks, child tax credit payments, Obamacare enforcement, foreign bank account tracking and, lately, hunting down Russian yachts. Without reliable, long-term funding guarantees, the IRS has struggled to upgrade its systems. …
“The technology dates to the 1970s — though this particular machine was updated in the ’90s to make it Y2K-compliant. The company that once manufactured SCAMPS no longer exists; when the machine breaks down, an IRS employee fabricates replacement parts on-site. ‘Only one guy knows how to fix the thing,’ says John Desselle, a mailroom department manager.”[7]
The IRS might not be your favorite federal agency, but it needs to be updated to do its job. That job includes going after the billionaires and finally forcing them to pay their fair share.
[1] Paul Kiel. “Has the IRS Hit Bottom?” Pro Publica, 6/30/2020. < https://www.propublica.org/article/has-the-irs-hit-bottom> Consulted 8/23/2022. Note: a lot of the information in this blog post comes from Pro Publica, a nonprofit news site that has focused a lot of reporting on the IRS, over a period of years. See their home page, “Gutting the IRS” at < https://www.propublica.org/series/gutting-the-irs>
[2] Ibid.
[3] Jesse Eisinger and Paul Kiel. “The IRS Tried to Take on the Ultrawealthy. It Didn’t Go Well. (Pro Publica, 4/12/2019) <https://www.propublica.org/article/ultrawealthy-taxes-irs-internal-revenue-service-global-high-wealth-audits> Consulted 8/23/2022.
[4] Paul Kiel. “IRS: Sorry but It’s Just Easier and Cheaper to Audit the Poor.” Pro Publica, 10/2/2019. < https://www.propublica.org/article/irs-sorry-but-its-just-easier-and-cheaper-to-audit-the-poor > Consulted 8/23/2022.
[5] Op cit.
[6] Ibid.
[7] Catherine Rampell. “Why does the IRS need $80 billion? Just look at its cafeteria.” Washington Post, 8/9/2022. < https://www.washingtonpost.com/opinions/interactive/2022/irs-pipeline-tax-return-delays>
Mary Turck
News Day 