The IRS expects to collect over 560 billion more in unpaid taxes due to funding from Inflation Reduction Act

 In tax compliance

According to reporting from CBS News and Fortune Mag, the IRS said it is poised to collect hundreds of billions of dollars of additional tax revenue by going after overdue and unpaid taxes, far beyond what was previously anticipated, thanks to funding from the Inflation Reduction Act (IRA). 

The IRS is positioned to collect up to $561 billion more in overdue taxes from 2024-2034 than previously expected, per new Treasury Department and IRS analysis. This windfall stems from increased IRS enforcement capabilities funded by the Inflation Reduction Act, passed in August 2022.

The Congressional Budget Office initially estimated the tens of billions allocated to the IRS would generate $180 billion over 2022-2031. However, the IRS calculates revenues could reach $851 billion from 2024 to 2034 if IRA appropriations continue.    

Recently, the IRS released a statement in January 2024 saying that it’s 2024 filing season; the IRS has focused IRA resources on strengthening enforcement to pursue complex partnerships, large corporations, and high-income, high-wealth individuals who do not pay overdue tax bills. The IRS shared its progress in focusing on people using partnerships to avoid paying self-employment taxes and new details on current enforcement priorities. The IRS also continues to pursue millionaires who have yet to settle hundreds of millions of dollars in tax debt, with an additional $360 million collected on top of the $122 million reported in late October. The IRS has now collected $482 million in ongoing efforts to recoup taxes owed by 1,600 millionaires, with work continuing in this area.

The Biden administration spotlights these projections to showcase economic policy success amidst the President’s reelection campaign. The analysis also defends IRS resources as the agency faces ongoing financial threats.

National Economic Adviser Lael Brainard framed the report as evidence that investments enable the IRS to crack down on tax evasion by the wealthy and corporations. The estimates come as some Republican lawmakers have sought to cut IRS funding, warning that the tax agency could ramp up audits of middle-class Americans. However, IRS and Treasury officials have stated the IRS is focused on tracking down wealthy tax cheats and businesses with unpaid or overdue tax bills.

Brainard also criticized Congressional Republicans for attempted IRS budget cuts despite projected deficit reduction, signaling misplaced priorities.    

New hiring, improvements to IT, increased use of data analytics and deterrence factors are helping them 

A website called Govexec reported that Melanie Krause, IRS’ chief data and analytics officer, said IRA-funded improvements throughout the tax system would cause voluntary compliance to increase, also contributing to additional revenue generation. The estimate of annual uncollected taxes—known as the tax gap—grew to nearly $700 million in 2021. Technology improvements, including increased use of automation and data analytics boosted by AI, enabled the IRS to deploy both existing and new staff more effectively, which Treasury officials cited for the revenue estimate increase.  

IRS has already onboarded thousands of customer service personnel using IRA funds, resulting in a much-improved phone answer rate last year and dozens of taxpayer assistance centers opening. The agency announced last fall it had 3,700 enforcement positions open. The taxman agency is expected to hire tens of thousands of employees over the life of its enhanced funding. However, much of that will go toward backfilling longstanding vacancies and keeping pace with attrition. IRS now employs over 90,000 people, its highest total in over a decade. 

$80 billion in new IRS funding

The Inflation Reduction Act provided $80 billion to the IRS; however, House Republicans built a $1.4 billion reduction to the IRS into the debt ceiling and budget cuts package passed by Congress last summer. However, a separate agreement trimmed an additional $20 billion from the IRS over the next two years to divert to other non-defense programs. Since then, the IRS has publicized service improvements and tax dodger crackdowns to demonstrate the effective use of remaining funds. Will this increase tax audits on small business owners? 

Ensuring that people pay their taxes remains an immense IRS challenge. According to Treasury data, audit rates plunged 50-70% for top earners and corporations last decade. The IRA money now fuels overdue enforcement boosts against ballooning tax gaps surpassing $600 billion annually.

By spotlighting significant projected returns, the administration and IRS make their case to protect resources and continue reversing trends on uncollected taxes.

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