House subcommittee questions IRS audit rates and resources

The causes of and remedies for the persistently high rates of abusive Earned Income Tax Credit (EITC) payments and the resulting high audit rates by the IRS of taxpayers claiming the credit were among the topics discussed Wednesday by members of the oversight subcommittee of the House Ways & Means Committee.

The session, “On Taxpayer Fairness in the IRS”, drew on a report released Tuesday by the US Government Accountability Office (GAO) that was compiled at the request of subcommittee chair Rep. Bill Pascrell, DN.J. This report, Trends in IRS Audit Rates and Results for Individual Taxpayers by Income, included an analysis of IRS audits of returns claiming the EITC. On hand to present these findings was James McTigue Jr., GAO director, strategic issues.

Also appearing as a witness was Ken Corbin, commissioner of the IRS’s Payroll and Investments Division and, since last year, the Service’s director of taxpayer experience.

Audit rate

At the start of the hearing, Pascrell denounced what he called “one tax system for the rich and another for everyone else,” saying the IRS enforcement is experienced by billionaires in a way “very different” from that of the “average American”. EITC claimants are much more likely to be audited than other taxpayers, Pascrell said.

The GAO report found that the audit rate for EITC taxpayers is 0.77%, about three times the average for all taxpayers of 0.25%.

The IRS’ administrative shortcomings affect all taxpayers equally, Pascrell said. These include filing backlogs in the tens of millions, erroneous taxpayer notices and unanswered taxpayer phone calls, Pascrell said.

Ranking member Rep. Tom Rice, RS.C., also lamented slow processing times and spotty phone customer service, while praising the “heroic” efforts of IRS employees to administer the relief measures. fiscal COVID-19 such as Economic Impact Payments (EIP) amid the pandemic’s hurdles to the agency’s own operations.

Rice noted that this is the seventh time the subcommittee has reviewed the EITC, and he urged other lawmakers to “go beyond the talking points” to better understand the reasons for a rate of around 25% irregular credit payments per year, involving approximately $19. billion in the most recent tax year for which data is available.

“It’s a huge problem” that requires audits, said Rice, who also pointed to his own experience as a tax attorney and CPA. “Instead of criticizing the audit rate, let’s fix the underlying problem,” he said. This solution should focus on the complexity of the credit and the difficulties for qualifying taxpayers to document the presence of a qualifying child under the rules of the credit.

One tool the IRS has in place to help taxpayers better understand the EITC and claim it correctly is its online EITC WizardCorbin said.

IRS Budget

Corbin called on lawmakers to support President Joe Biden’s fiscal year 2023 budget request, including a $14.1 billion allocation for the IRS and “stable, multi-year funding.”

McTigue also cited funding as why the IRS has been challenged to replace retiring and departing audit staff. The exodus is one of the reasons GAO has found that the time spent auditing high-income taxpayers has increased and audit rates for all taxpayers have generally declined over more than a decade.

The Service’s $11.9 billion budget for 2021 is 20% lower than 2010, adjusted for inflation, McTigue said. The roughly 75,000 employees employed by the IRS this fiscal year are nearly identical to its workforce in 1973, he added. At the same time, the Service’s responsibilities expanded to include provisions such as EIPs and the Medicare Subsidy, as well as many other new tax provisions.

As audit rates declined, taxpayers collectively continued to underreport their tax liabilities by about $245 billion a year, McTigue said. Audits remain an important incentive for taxpayers’ voluntary compliance with tax laws, he said.

“Historically, the compliance rate has been fairly stable, but if audit rates continue to decline, one of the main tools for driving voluntary compliance could lose its effectiveness and taxpayers could begin to lose confidence in our system. tax, further eroding compliance,” McTigue said.

Information returns

The IRS response last week to revelations from the Treasury Inspector General for Tax Administration that the service in 2021 destroyed approximately 30 million unprocessed information returns on program computers for an upcoming season tax reporting should, some say, be the focus of the subcommittee on Wednesday.

Instead, it only came across in passing, as Rep. Carol Miller, RW.Va., cited the incident as an illustration of how, in her view, the IRS is unlikely to be able to to handle a likely higher flow of 1099 forms early next year. -K, Payment Card and Third-Party Network Transactions. Beginning in 2022, the filing requirement threshold for this information form has been reduced to $600 in reportable transactions, from $20,000 or 200 transactions previously.

Miller called on her fellow reps to support HR 3425, the Saving Gig Economy Taxpayers Act, which she introduced last year. The bill would repeal the lower threshold, reinstating the upper threshold, “thus saving working-class people who are just trying to make ends meet, as well as the taxman from a flood of paperwork and phone calls,” said said Miller.

And Miller asked Corbin if the IRS was ready for the many bewildered phone calls from taxpayers she said would follow, given that her phone pick-up rate was currently “hovering around 10 percent.”

Corbin responded that the IRS plans to have enough customer service representatives in place by then to do so and will further expand its recall capacity. Additionally, Corbin said, the IRS will address the issue in taxpayer education and awareness campaigns with community partners.

— To comment on this article or suggest an idea for another article, contact Paul Bonner at [email protected].


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