President Biden’s proposed expanded budget for IRS is a massive $80 billion funding boost to be granted over the next decade. This is a notable financial expansion of the tax agency and would result in doubling its capacities, including more enforcement staffing. The additional funding would also further modernize the IRS to fight tax dodging done by the wealthiest citizens of the US.
According to individuals familiar with the proposal, President Biden’s IRS budget proposal is projected to generate an additional $700 billion over the next ten years in net revenues. Additional revenues will be used for old and new social-spending programs. $700 billion represents just ten percent of what is believed to be the total of uncollected taxes today.
The expanded budget will serve as a steady source of funds for the IRS. Declining collections over the years have resulted in steep cuts for the tax agency and reductions in the number of staff that works on assessment, audits, and collections.
The IRS needs to work out a multi-year plan and commitment from Congress so the tax agency can start hiring more staff and increase the volume of tax audits. A go-ahead from Congress will also reduce potential stoppages to the initiative midway through the effort. The extra funding will allow the tax agency to hire 15% more staff annually.
As the IRS modernizes its systems and improves its auditing and collection efforts, more than half of the projected $700 billion will come from essential changes to how individuals and businesses file or report their taxes to the government.
The main plan is to get payment providers, fintech, and other financial institutions to tell the IRS how much money is coming into the accounts of taxpayers (both individual accounts and business accounts) every year. This goes far beyond the boundaries of what is currently done at the IRS, simply reporting income.
The collection has always been a perineal problem for the beleaguered tax agency. It has always struggled to close the tax gap or the difference between the amount owed to the government and how much money the tax agency collects annually. The gross tax gap is computed by the amount of money that the tax agency cannot order for the current year. It is a measure of compliance/non-compliance with the country’s tax code.
The IRS has two major tasks: it has collected the highest revenue possible for the government so the government can fund its programs and agencies and enforce compliance with the tax code and other federal laws related to the assessment and collection of taxes. In 2019, the tax agency reported that it successfully processed 253 million tax returns and over $3 billion information returns. The IRS collected $3.5 trillion in the process, with $452 billion sent out in refunds.
Supplemental funding from Congress aims to reduce the tax gap further. This is a program integrity cap adjustment. It is done to allow the current Administration and Congress to increase allocations (for annual appropriations) for different IRS processes. These purposes include various activities for maintaining program integrity, which essentially improves the effectiveness of a program by enforcing compliance.
The Consolidated Appropriations Act of 2021 shows increased allocations for taxpayer services, enforcement, operations support, and business systems modernization for the IRS. TS or taxpayers’ services include printing publications, forms, filing services, account services, and processing returns. It also provides funding for the Taxpayer Advocate Service or TAS.
The ENF or enforcement account is dedicated to expenses that are used for collecting and assessing taxes. It also funds criminal investigations and providing legal support. IRS enforcement activities in 2021 required $61 million more than the enacted sum for FY2020. The current explanatory statement states that the IRS must hire more special agents so that Criminal Investigations can be carried out more efficiently and expand this tax agency’s function.
The current request includes a new budget authority is amounting to $280 million to reduce the current tax gap. OS or operations support covers facility services, telecommunications, postage, and security. It also funds the maintenance and upgrading of existing agency information systems.
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