Enforcement Activities Focused on Wealthy Taxpayers: IRS Chief

Tax gap of wealthy Americans totaled $150 billion, the IRS chief said.

A sign outside the Internal Revenue Service building in Washington on May 4, 2021. Patrick Semansky/AP Photo

Danny Werfel, chief of the U.S. Internal Revenue Service (IRS), said the agency was going after wealthy individuals evading the paying of tax dues, adding that this ensures other ordinary taxpayers wouldn’t be “shouldering the burden of funding our government.”

“In the enforcement space, what we’re really focused on is complex filers, the wealthiest filers in the United States, the largest partnerships, the largest corporations,” Mr. Werfel said during n a March 20 interview with the Associated Press. “And in that space, we’re working to distinguish between those taxpayers that are doing the right thing and those that are doing the wrong thing, and then we’re focusing on those that are doing the wrong thing.”

“If we are collecting what is owed from the wealthiest taxpayers, it means that others aren’t shouldering the burden of funding our government and its many critical activities.” Mr. Werfel equated the IRS with an NFL referee. “When we get the call right or wrong, we get booed, and we’re okay with that.”

Last month, the commissioner said that millionaires and billionaires were underreporting or not filing incomes, which he claimed was contributing $150 billion to the tax gap. The tax gap is the amount owed to the government in taxes minus the amount the government actually receives.

The Inflation Reduction Act (IRA) had set aside $80 billion for the IRS, which has been reduced to around $60 billion. In January, the agency said it set up new initiatives using the funding to go after millionaires who owe taxes and announced a collection of $482 million from 1,600 millionaires under the initiative.

While the IRS claims it intends to use IRA funds to go after wealthy taxpayers, Republican congress members aren’t convinced, expressing concerns that agents tend to target middle-income Americans.

Treasury Secretary Janet Yellen, President Joe Biden, and others have pushed back against the idea that the IRS’s funding boost would be used to raise scrutiny on Americans making less than $400,000 a year.

During testimony before the Senate Finance Committee on May 16 last year, Chris Edwards of the CATO Institute said that the IRS intends to assess the income of businesses without accounting for losses.

Increased audits would likely affect “mainly small to midsize businesses, who actually may have [adjusted gross income] under $400,000,” he warned.

In an Oct. 24 hearing, Mr. Werfel refused to clarify that the IRS will not target such Americans as part of enforcement activities.

“You are guaranteeing that you will not increase the number of audits of people making less than $400,000 a year?” Rep. Virginia Foxx (R-N.C.) asked Mr. Werfel.

The IRS commissioner did not give a clear reply. Instead, he promised to publish the audit rates for Americans making less than $400,000.

A January report by the Treasury Inspector General for Tax Administration (TIGTA) said that the agency plans on boosting its enforcement staff by a net 5,462 employees for fiscal year 2024. This would mark a 40 percent jump in enforcement personnel compared to staffing at the beginning of October 2023.

Out of the 5,462 net additions, 4,704 will be revenue agents who are tasked with conducting “face-to-face audits of more complex returns.” The tax agency intends to add a net 493 special agents for the year, who are armed officials investigating “potential criminal activities.”

IRS’s Customer Focus

In his interview, Mr. Werfel highlighted the agency’s use of IRA funding, insisting that “it’s a myth that we’re hiring 87,000 armed agents. We are not.”

Instead of 87,000 armed agents, the IRS is focused on “hiring phone assistants, armed only with phone headsets. We’re hiring accountants, armed only with calculators.”

“We have to go out there and make that message, and also make it clear that our agenda under the Inflation Reduction Act is really focused on these areas of being accessible, answering the phones, keeping our walk-in centers open, and updating our website so that people can do things more with the IRS without ever leaving their smartphone or their tablet or their computer.”

Mr. Werfel claimed that the IRS’ call center is seeing a “record high performance.” The agency was “answering calls at a record rate, our wait times are at two minutes or less, and we’re seeing record traffic to irs.gov because we’ve added more tools.”

“We’ve added more tools to irs.gov in the last two years than in the previous 20. So there’s a lot of, I think, positive reaction to the fact that the IRS is making progress in making the tax filing process easier,” he said.

Meanwhile, the IRS launched a pilot Direct File program, a free online tax-filing service. Mr. Werfel claimed that the service is receiving positive feedback, with taxpayers commenting on its ease of use.

“People are telling us that they found it to be quick and easy, and everyone certainly loves that it’s free. And their number-one question is: Are we going to have this again next year?” Mr. Werfel told AP, without confirming the future of the initiative.

Republicans have questioned the Direct File program. In a Jan. 30 letter to the Treasury secretary, a group of 13 Republican attorneys general raised concerns that Direct File will harm low-income Americans.

Taxpayers choose to work with tax professionals “because they want an advocate in their corner who will represent their interests against the IRS bureaucracy.” Why would “any American trust the IRS to not abuse its power?” the lawmakers questioned.

“Congress has never granted the Department of the Treasury authority to create a Direct File program. And for good reason: the American taxpayers do not want to invite the proverbial fox into the hen house. A Direct File program will also have negative consequences for low-income filers and devastate small businesses.”