Treasury Secretary Janet Yellen has ordered the Internal Revenue Service (IRS) not to send tax enforcers to audit households making less than $400,000 per year after concerns were raised that a massive funding boost to the agency would be used to crack down not on wealthy tax dodgers but to bully middle-income Americans.
The Inflation Reduction Act, which recently cleared the Senate in a partisan vote and is expected to be approved by the House as soon as Friday, allocates some $80 billion in additional funding for the IRS, with a portion earmarked for increased enforcement such as audits.
She vowed that audit rates wouldn't increase for households making less than $400,000 per year.
"Specifically, I direct that any additional resources—including any new personnel or auditors that are hired—shall not be used to increase the share of small business or households below the $400,000 threshold that are audited relative to historical levels," Yellen said.
"This means that, contrary to the misinformation from opponents of this legislation, small business or households earning $400,000 per year or less will not see an increase in the chances that they are audited," she added.
Audits Targeting Middle-Income Americans?Republicans have speculated that the money would be used to hire tens of thousands of IRS agents while arguing that their enforcement efforts would target ordinary Americans.
And while the bill itself makes no mention of hiring targets, the 87,000 figure was also cited by Grover Norquist, president of the Americans for Tax Reform, in a recent interview on Fox News.
“It is wholly inaccurate to describe any of these resources as being about increasing audit scrutiny of the middle class or small businesses,” Natasha Sarin, a counselor for tax policy and implementation at the Treasury Department, told the outlet.
'Play By the Rules'The IRS chief, too, has insisted that the tax agency would "absolutely not" be increasing audit scrutiny on small businesses or middle-income Americans but that the extra funds would "get us back to historical norms in areas of challenge for the agency," such as large corporate and high-net-worth taxpayers with tax issues, according to a letter to members of the Senate on Aug. 4 (pdf).
Those issues, Rettig said, would require "sophisticated, specialized teams in place that are able to unpack complex structures and identify noncompliance."
"These resources are absolutely not about increasing audit scrutiny on small businesses or middle-income Americans," Rettig added. "As we've been planning, our investment of these enforcement resources is designed around the Department of the Treasury's directive that audit rates will not rise relative to recent years for households making under $400,000."
Democrats have argued that the funding is needed to crack down on wealthy tax dodgers.
"Without these new investments, those at the top will be able to get away with more and more tax avoidance. That’s not fair to the tens of millions of honest, hardworking taxpayers who play by the rules," lawmakers said.
The IRS has blamed the declining audit rates on staffing issues and the lack of experts needed to handle complex higher-income audits.
'IRS Funding Bloat'Some critics of the IRS funding boost insist a big part of the new money will be used to target middle-class Americans.
The Congressional Budget Office estimates that the funding boost to the IRS is expected to bring in $203.7 billion in revenue from 2022 to 2031.