Danny Werfel testifies before the Senate Finance Committee during his IRS commissioner nomination hearing on February 15, 2023, in Washington, DC.
Washington CNN —
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.
The article delves into the comprehensive revamp planned for the Internal Revenue Service (IRS) and the focus it places on auditing, funding allocation, staffing, and enhancing taxpayer services. As someone well-versed in tax policy and IRS operations, I can discuss the concepts touched upon in this piece.
Firstly, the article addresses the IRS's intended overhaul to increase audits primarily targeting wealthier individuals and larger corporations. This strategic shift is fueled by an $80 billion investment over the next decade, sourced from the Democrats' Inflation Reduction Act. The aim is to amplify revenue collection by around $100 billion without significantly impacting audits on average households, as emphasized by IRS Commissioner nominee Daniel Werfel during his Senate Finance Committee hearing.
Werfel's statements regarding audit concentration on higher-income brackets align with Treasury Secretary Janet Yellen's assurance that households earning less than $400,000 annually won't encounter increased audit rates. The focus on bolstering audits for wealthier individuals and corporations while maintaining historical audit levels for average taxpayers serves as a key strategy.
Moreover, the article touches on the decline in IRS staffing over recent years despite increased tax law complexities and a growing population. The plan involves bolstering staff, but specific figures regarding the number of auditors to be hired with the new funding remain undisclosed. Critics' exaggerated claims of hiring 87,000 auditors targeting average taxpayers are debunked, with clarifications that these hires would largely fill vacancies due to attrition.
Werfel also highlighted improvements in customer service, citing the addition of 5,000 new customer service agents and substantial enhancements in call response rates and wait times. Efforts are underway to digitize operations, allowing easier access to taxpayer information and facilitating online interactions and responses to IRS notices.
In summary, the key concepts covered encompass:
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IRS Overhaul: Targeted audits on wealthier individuals and corporations while maintaining historical audit levels for average households.
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Funding: An $80 billion investment over a decade from the Inflation Reduction Act to support IRS initiatives.
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Audit Focus: Assurance that households earning less than $400,000 annually won't face increased audit rates.
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Staffing: Plans to increase staff but without disclosed figures. Debunking exaggerated claims about hiring auditors targeting average taxpayers.
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Customer Service Improvement: Increase in customer service agents, improved call response rates, reduced wait times, and a push towards digitization for easier taxpayer interactions.
