The forthcoming overhaul of the Internal Revenue Service is intended to increase audits of the wealthy and big corporations while leaving audit rates on average households the same, according to a plan released by the agency Thursday.
The highly anticipated outline details how the IRS will spend a new $80 billion investment over the next decade.
The funding comes from Democrats’ sweeping Inflation Reduction Act, which passed along party lines last year and is meant to support the agency in cracking down on tax cheats and providing better service to taxpayers.
As a result of the improvements, the IRS is expected to collect more than $100 billion in new revenue over a 10-year period.
But Republicans have been critical of sending so much money to the IRS and skeptical that the investment won’t lead to increased audits of hardworking Americans. In the GOP-controlled House, a bill passed earlier this year that would rescind most of the new funding – though it has no chance of becoming law.
Biden administration officials have repeatedly said that taxpayers earning less than $400,000 a year won’t face an increase in taxes due to the new funding, though there is some uncertainty about how exactly the IRS can ensure this.
The IRS’ new commissioner, Danny Werfel, addressed the issue on a call with reporters Thursday. The focus of new audits, he said, will first be on wealthy individuals, large corporations and complex partnerships.
“We have years ahead of us where we will be 100% focused on building capacity for higher income individuals and corporations. During this time, the audit rates of average taxpayers will not increase,” Werfel said.
“People who get W-2s or Social Security payments, or have a small business, should not be worried about some new wave of IRS audits. We’re taking that off the table,” he added.
Previously, Treasury Secretary Janet Yellen said that audit rates for those earning less than $400,000 a year will not exceed “historical levels.”
Werfel added some clarity to what that means Thursday. He said the audit rates of households under that threshold won’t come close to hitting a historical average rate for several years to come. The IRS, he said, has no plan to increase audit rates for those taxpayers compared with “the most current audit rate we have,” which is a “historically low rate.”
How many auditors will be hired?
The IRS will be adding staff, but Werfel did not say how many auditors will be hired as a result of the new funding.
The agency’s staff has been declining for some time. With about 80,000 full-time employees, the IRS is almost 20% smaller than it was in 2010, Werfel said. At the same time, the US population has grown and the IRS was required to implement several major tax law changes.
The number of auditors that work on complex returns has been cut nearly in half to 2,600 compared with 2010, Werfel added.
Some Republican leaders have made the exaggerated claim that the $80 billion in new funding would be used to hire 87,000 auditors who will target hardworking Americans.
But the 87,000 figure is misleading. Many of the new hires will be replacing staff that the IRS has already lost or is expected to lose through attrition in coming years. And while a 2021 Treasury report estimated that the IRS could hire 86,852 full-time employees over the course of a decade with a nearly $80 billion investment, that would account for all workers – not solely enforcement agents.
Werfel also noted Thursday that the share of staff working in the agency’ criminal investigations division would not grow.
Improved customer service
The IRS will also be working to improve taxpayer service. So far, the agency has hired 5,000 new customer service agents since the Inflation Reduction Act passed last year.
And Werfel said the increase is already making a difference.
The IRS is consistently answering between 80% and 90% of incoming calls, compared with just 17% last year, he said.
Wait time is also down. On average, callers are waiting about four minutes on average compared with 20 minutes last year.
Additionally, the IRS has drastically increased the number of paper returns it scans. This brings taxpayer information into the digital system, avoiding huge potential backlogs of paper returns.
Over the next five years, the agency plans to make it much easier for taxpayers to securely access their tax information, including payment history online, as well as respond to notices from the agency digitally.