THE IRS IS COMING, THE IRS IS COMING - NOT!

 
Sadly true to form, because the $80 Billion in additional funding for the Internal Revenue Service (from the Inflation Reduction Act of 2022) was in a bill introduced and supported by President Biden and the Democratic Party, the Republicans are saying the additional funding means an army of IRS auditors will soon be coming after average middle class taxpayers.
 
Clearly, like, also sadly, just about everything else said by the today’s Republican Party and Republicans in Congress, this is a lie.  

The increased IRS funding is a good thing.
 
Here is the story (fellow tax pros, correct me if I am wrong) –
 
The $80 Billion in additional funding is spread over ten (10) years – through 2031 – and the use of this money is specifically identified in the Act.
 
* $45+ Billion is for “tax enforcement activities” such as hiring and training enforcement agents, purchasing equipment for enforcement agents and investing in investigative technology.
 
* About $25 Billion is for “operations support” such as rent and facility payments, printing, postage and other office supplies and costs, security of IRS facilities, IRS-wide administration, research, and enhancement and development of information technology.  This money will help the Service address the ongoing backlog generated by the COVID-related shut-down.
 
* Almost 5 Billion is for “business system modernization” to update outdated technology and systems, cybersecurity, and to improve customer service.
 
* $3+ Billion is for “enhancement of IRS services” such as pre-filing assistance and education, filing and account services, and taxpayer advocacy.
 
* $500+ Million to oversee the administration of the additional funding provided by the Inflation Reduction Act.
 
* $500+ Million for the Treasury Inspector General for Tax Administration and the Office of Tax Policy.
 
The Act also provides $15 Billion through September 30, 2023 for the IRS to investigate and provide a report to Congress on the options and costs of creating and administering a free direct electronic filing tax return system.  This is a system that would allow, I would expect, all taxpayers, and presumably their tax professionals, to compile and submit their federal income tax returns – Form 1040 and Form 1040-SR - directly to the IRS free or charge at the irs.gov or another IRS maintained website.
 
The IRS currently has a limited online FreeFile system for low income taxpayers (which we have been told is used by only 3% of those who qualify) – but this system is not a direct submission of returns to the IRS.  The actual compilation and submission of the returns is done by commercial tax preparation and tax preparation software companies and requires taxpayers to share personal financial information with these third-party for-profit companies.  As I understand it, the new system the IRS will investigate will be completely created and administered by the Service and will not involve any third-party commercial “partners”. 
 
What would be ideal is a system similar to the New Jersey Division of Taxation’s current program which allows all taxpayers, or their tax professionals, to submit NJ-1040 returns directly to the Division free of charge online using Division created and maintained software.  I would suggest that the IRS study the NJ system.
 
Clearly the greater the amount of gross income, and the more involved the return, the more likely an audit will find purposeful or inadvertent/unintended errors on the return and generate additional tax dollars.  There are not great sums of money to be found by auditing average middle class taxpayers.  Whatever you may think of the IRS, the Service is not stupid and it knows this.  In addition, Treasury Secretary Yellen has issued a directive that the IRS should not increase examinations of taxpayers making less than $400,000.  The increase in IRS audits that results from the additional funding will correctly be on high-income taxpayers.
 
The IRS has been underfunded for years.  And, despite reduced funding, each year Congress gives the Service more work to do - such as having it administer the recent stimulus payments and to administer the continued and expanding erroneous distribution of government social welfare and other benefit programs via the Tax Code.  This additional funding for the Internal Revenue Service is truly a good thing for everyone, except perhaps tax cheats.
 
Whenever I discuss IRS administration nowadays, I always add this commentary:
 
Trump never does anything, including appoint what he considers “underlings”, without some kind of required quid pro quo and pledge of loyalty.  So, I was understandably skeptical when Trump appointed a new IRS Commissioner.  However, hearing Commissioner Rettig speak at the National Association of Tax Professionals national conference in Washington DC shortly after his appointment I was not unimpressed and decided to give him the benefit of the slim doubt. 
 
However, the proven erroneous decision to very literally lock down the IRS for over 6 months in reaction to COVID and the problems and issues it generated has made me wonder if this was a conscious decision to attempt to at least hinder IRS audits and enforcement – similar to the way Trump’s Postmaster General appointee DeJoy purposefully tried to destroy the Post Office to invalidate 2020 mail-in ballots, which were expected to be mostly for Biden – and was Rettig’s “quid pro quo”.
 
I will not be completely comfortable that the IRS is being properly administered at the top until a new Commissioner is appointed.
 
TTFN