Treasury Secretary Wants to Know How IRS Will Spend New Funding

Department of the Treasury Secretary Janet Yellen has requested a detailed plan from the IRS on how it plans to spend to the $80 billion in additional funds that the agency received as part of the Inflation Reduction Act.

“I would like the IRS to work closely with the Deputy Secretary to identify specific operational initiatives and associated timelines that will improve taxpayer services, modernize technology, and increase equity in our system of tax administration by pursuing tax evasion by those at the top who today do not pay their tax bill,” Secretary Yellen said in an August 17, 2022, memorandum to IRS Commissioner Charles Rettig.
She told the IRS to deliver an operational plan within six months, including “details on how resources will be spent over the 10-year horizon on technology, service equipment, and personnel. This operational plan is key to ensuring the public and Congress are able to hold the agency accountable as it pursues needed improvements.”

Yellen added that she is “prepared to approve the near-term use of funds to improve services for next filing season, but we should treat this plan as a prerequisite for expending these resources more broadly, as I think there is value in thinking carefully over the course of the next few months how work should be prioritized and sequenced to achieve our goals.”

Replacing Those Who Will Be Retiring

To combat stoked fears of audits, Yellen reiterated that new funds from the Inflation Reduction Act “will not result in households earning $400,000 per year or less or small businesses seeing an increase in the chances of being audited relative to historic levels. Instead, they will allow the IRS to work to end the two-tiered system, where most Americans pay what they owe, but those at the top of the distribution often do not.”

Much of the new hiring will go to simply maintaining employment levels as the funds will help “to replace the attrition that is on the horizon from the expected retirement of at least 50,000 employees over the next five years.” A Treasury official noted that revenue agents will not be the main focus of the hiring, but rather employees who will help improve customer service through IT upgrades and serve as customer service representatives. The IRS will also seek out auditors with specialized experience to enforce the tax laws against high income individuals and corporations who avoid paying their tax bill.

The official noted that the number of IRS auditors that can handle the complex returns of high income individuals and corporations is roughly the same number today as the agency had during World War II, which allows the IRS to examine about 7,500 returns of the nearly 4.5 million it receives in this category.

Closing The Tax Gap

With the additional resources from the Inflation Reduction Act, the IRS could collect an additional $400 billion over the next 10 years, although others, including former IRS Commissioner Charles Rossotti puts the collection amount at more than $1 trillion during the additional funding time period, according to testimony he provided to the Senate Finance Committee’s Subcommittee on Taxation and IRS Oversight during a May 11, 2021 hearing.

The IRS is unable to collect 15 percent of the taxes that are owed, and over the next ten years, the tax gap could reach as high as $7.5 trillion.

Scroll to Top